- USD/JPY witnessed aggressive selling after the release of US consumer inflation figures.
- A sharp pullback in US bond yields fueled USD profit-taking and put some pressure on it.
- The widening of the US and Japanese bond yield spread acted as a tailwind and helped limit losses.
The pair USD/JPY quickly reversed the post-US CPI low to a fresh daily low and was last seen trading in neutral territory, around the 125.25-125.30 region.
The pair pulled back from the neighborhood of the multi-year high around the 125.75 region and dropped almost 100 pips during the early American session on Tuesday. The USD witnessed a typical “buy the rumour, sell the news” trade following the release of the US consumer inflation figures.
Headline CPI accelerated to 8.5% yoy in March from 7.9% previously, while core CPI missed expectations and rose 6.5% yoy during the reported month. The data was not as bad as feared and forced investors to lower their expectations of more aggressive policy tightening by the Fed.
This was evident from a sharp pullback in US Treasury yields, which, in turn, led USD bulls to take some gains off the table and put downward pressure. on the USD/JPY pair. That said, a sharp rally in equity markets undermined the safe haven JPY and helped limit losses.
In addition, investors remain concerned that the recent surge in commodity prices will put upward pressure on already high consumer prices. This should act as a tailwind for US bond yields and supports the prospect of some falling USD buying and lend support to the USD/JPY pair.
Conversely, caution around BoJ intervention to defend its 0.25% yield target should cap Japanese government bonds. The resulting widening of the US and Japanese government bond yield spread suggests that any decline should continue to attract new buyers around the USD/JPY pair.
Technical levels
Source: Fx Street
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