USD/JPY slips below 136.00 on bullish Japanese retail trade, lower yields, focus on Fed’s Powell

  • USD/JPY accepts offers to refresh daily lows, initiates 3-day uptrend around weekly high.
  • Retail trade in Japan beat market expectations and previous readings in May.
  • Yields remain under pressure for day two amid recession/inflation fears, BOJ’s Kuroda reiterates support for easy money policies.
  • US data and Fed Chairman Powell’s appearance at the ECB Forum are important catalysts for further momentum.

USD/JPY consolidates weekly gains during Wednesday’s lackluster Asian session, refreshing intraday lows around 135.90 as of press time. In doing so, the yen pair initiates a three-day uptrend around a one-week high. The latest weakness in the rating could be linked to strong retail data from Japan, as well as falling Treasury yields.

Retail trade in Japan for the month of May rose to 3.6% YoY vs. 3.3% expected and 3.1% revised upwards previously. Sales at large retailers rose 8.5% vs. 1.3% expected and 4.0% previously.

On the other hand, market indecision on the economic stance, as well as inflation fears, join the Fed’s hawkish rhetoric to weigh on US Treasury yields, which in turn are drowning out USD/JPY prices. lately. That said, 10-year US Treasury yields fell for the second day in a row to 3.157%, while S&P 500 futures posted small losses at press time.

A jump in US consumer one-year inflation expectations joined hawkish Fed rhetoric to rekindle fears of a faster Fed rate hike. Speaking of data, the US Conference Board (CB) Consumer Confidence Index fell for the second month in a row in June, to 98.7 from 100.0 expected and 103.2 in May. In doing so, the widely watched consumer confidence gauge fell to its lowest level since February 2021. Further details revealed that expectations for the one-year consumer inflation rate climbed to 8% from the revised version of May 7.5. It should be noted that the US trade deficit fell to the lowest in a year, at $104.3 billion, according to the latest publication in May.

Elsewhere, the Group of Seven (G7) countries have announced restrictions on Russian oil prices while the North Atlantic Treaty Organization (NATO) meeting does not signal a welcome environment for China. Additionally, US Under Secretary of Commerce Don Graves said, “A clear response from the US on Chinese tariffs is coming soon,” according to Bloomberg TV, raising fears of further Sino-US spats.

In addition to what has already been mentioned above, recent comments by Bank of Japan (BOJ) Governor Haruhiko Kuroda are also weighing on USD/JPY prices. “Unlike other economies, the Japanese economy has not been greatly affected by the global inflationary trend, so monetary policy will continue to be accommodative,” the BOJ’s Kuroda said.

Looking ahead, core US personal consumption expenditure (PCE) for the first quarter of 2022, which is expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of first-quarter US GDP, which is expected to confirm an annualized contraction of 1.5%. Above all, central bankers’ discussions at the ECB Forum will be key for market participants to ensure clear guidance.

Technical analysis

A sharp upside break of the weekly resistance line and successful trades past the 10-DMA around 134.75 and 135.30 respectively propel USD/JPY to a monthly high of 136.75.


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