- USD/JPY lacks firm direction and is trading between tepid gains and minor losses on Wednesday.
- The pullback in US bond yields keeps dollar bulls on the back foot and acts as a headwind for the pair.
- The divergence between Fed and BoJ policy continues to provide support ahead of US data and Powell’s speech.
The pair USD/JPY It is struggling to capitalize on its modest intraday rise on Wednesday and faces rejection near the 13,900 level. The pair falls to a new daily low during the first hour of the European session, although manages to recover above 138.50 in the last hour.
The dollar remains on the defensive amid a modest decline in US Treasury yields and turns out to be a key factor acting as a headwind for USD/JPY. Despite recent statements by Federal Reserve officials, investors seem convinced that the US central bank will slow down the pace of its rate hikes. In fact, markets have fully priced in a relatively minor Fed rate hike of 50 basis points in December, which, in turn, is seen as putting pressure on US bond yields and the dollar.
Apart from this, the Concern over worsening COVID-19 situation drives some safe-haven money flows into the Japanese yen and helps cap USD/JPY. However, the downward trend is supported by the more dovish stance taken by the Bank of Japan (BoJ), which continues to weigh on the yen. Indeed, BoJ Governor Haruhiko Kuroda stated earlier this month that The central bank will maintain its monetary easing to support the economy and reach the 2% inflation target on a stable basis. Instead, the Fed is expected to continue raising borrowing costs to combat persistent inflation.
Thus, the focus will remain glued to Federal Reserve Chairman Jerome Powell’s scheduled speech, which will be scrutinized for clues on future rate hikes. This will play a key role in influencing dollar price dynamics and providing some significant boost to the USD/JPY pair ahead of Friday’s key US employment data (NFP). Meanwhile, the US ADP report, US Q3 GDP flash report and JOLTS job openings data will be released on Wednesday. This, coupled with US bond yields and broader risk sentiment, should allow traders to take advantage of some short-term opportunities around the pair.
USD/JPY technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
