USDJPY falls from a weekly low amid falling yields

The USDJPY is aiming for a second weekly loss by trimming the corrective rally off the one-week low.

The USDJPY is hovering around 134.00 early Friday, unable to preserve the previous day’s rebound from the lowest levels in a week.

Market sentiment is still shaky as a result of the US debt ceiling turmoil, bank jitters, and uneven data.

In doing so, the Yen pair reflects the market’s inertia in the face of a light calendar and mixed mood ahead of US inflation data. However, the risk-barometer pair is on track to register its second consecutive weekly loss as yields continue under pressure with the market’s rush to risk safety, primarily due to concerns about the US debt ceiling talks and banking difficulties.

However, the postponement of debt ceiling talks between US President Joe Biden and House Speaker McCarthy, as well as a drop in PacWest Bancorp shares, appear to be the key unfavorable developments in those areas. In contrast to the BoJ Summary of the April Monetary Policy Meeting, which showed policymakers’ support for the Japanese central bank’s ultra-easy money practices, comments defended the Fed’s hawkish moves.

Elsewhere, the recently escalating market fears surrounding the US debt ceiling expiry and banking fallouts, seem to allow the US Dollar to brace for the first weekly gain in three while pushing down the US Treasury bond yields for the third consecutive week. With this in mind, the USDJPY pair’s uncertainty appears understandable in the context of a light schedule at home.

However, the postponement of debt ceiling talks between US President Joe Biden and House Speaker McCarthy, as well as a drop in PacWest Bancorp shares, appear to be the key unfavorable developments in those areas.

The Bank of Japan maintains its easy-money policy, while rates remain under pressure as risk aversion favors bonds.

It is worth mentioning, however, that the Bank of Japan’s (BoJ) defense of easy monetary policy and the US Dollar’s recent recovery entices USDJPY purchasers.

Earlier in the day, the Japanese yen fell. Supply M2+CD for April, to 2.5% YoY from 2.6% prior and 2.7% market forecast, seemed to have favored the USDJPY buyers.

More signs about US inflation and risk drivers are being sought for definite directions.

In case of the US statistics, the Producer Price Index (PPI) improved to 0.2% MoM for April versus 0.3% expected and -0.4% prior. More crucially, PPI excluding Food and Energy, or Core PPI, climbed month on month but fell year on year. Furthermore, US Initial Jobless Claims increased by 264,000, pushing the figure to the highest since October 2021, escalating the risk-off atmosphere and favoring the US Dollar.

Following the data, Minneapolis Fed President Neel Kashkari stated that inflation has moderated but warned it is above the Fed’s 2% target when speaking at the Marquette CEO Town Hall in Michigan. In contrast to the BoJ Summary of the April Monetary Policy Meeting, which showed policymakers’ support for the Japanese central bank’s ultra-easy money practices, comments defended the Fed’s hawkish moves.

Elsewhere, the recently escalating market fears surrounding the US debt ceiling expiry and banking fallouts, seem to allow the US Dollar to brace for the first weekly gain in three while pushing down the US Treasury bond yields for the third consecutive week. With this in mind, the USDJPY pair’s uncertainty appears understandable in the context of a light schedule at home.

USDJPY Technical Outlook

USDJPY is expected to fall towards 133.90 and 133.70 in that sequence. The Yen pair’s recovery, however, remains elusive unless crossing the latest peak of around 135.50.