USD/JPY bear’s return eyes 138.00 on sluggish yields, BOJ chatters ahead of US ADP

• USD/JPY renews intraday low, pulls back from six-week high.
• Yields remain sluggish despite firmer US data, hawkish Fedspeak.
• BOJ’s Nakagawa teases discussion over policy change in September, firmer Japan data adds strength to bearish bias.
• US ADP Employment Change appears the key ahead of Friday’s NFP.

USD/JPY bears tighten the grip as they refresh the daily bottom around 138.30 during early Wednesday morning in Europe. In doing so, the yen pair snaps the three-day uptrend while reversing from the highest levels since early July.

While tracing the moves, sluggish yields, firmer Japan data and concerns surrounding the Bank of Japan’s (BOJ) monetary policy change seem to gain major attention. Also likely to exert downside pressure on the quote could be the cautious optimism in the market and anxiety ahead of important US employment data.

Earlier in the day, Japan’s Industrial Production for July improved to -1.8% YoY versus -2.6% expected and -2.8% prior. On the same line were the Retail Trade numbers for the said period, up 2.4% YoY compared to 1.95 market forecasts and 1.5% prior.

Elsewhere, the US 10-year Treasury yields rose to the highest levels in two months before the latest pullback to 3.10%.

It’s worth noting that Bank of Japan (BOJ) monetary policy board member Junko Nakagawa recently mentioned that he hopes to discuss policy change in September based on data available.

On the other hand, the US Consumer Confidence for August improved to 103.2 versus 95.3 in July, per the Conference Board’s (CB) latest survey details. Also, US Housing Price Index (HPI) rose by 0.1% MoM in June compared to May's increase of 1.3% and market expectation of 1.1%. Further, the S&P/Case-Shiller Home Price Indices eased to 18.6% YoY during the stated month versus 19.5% forecast and 20.5% previous readings. It should be noted that the US JOLTS Job Openings grew to 11.239M in July versus 10.475M expected and 11.04M prior (revised from 10.698M).

Following the data, Richmond Federal Reserve Bank President Thomas Barkin said, "I don't expect inflation to come down predictably." On the same line was Atlanta Fed President Raphael Bostic who said, “Slowing inflation data 'may give us reason' to slow interest rate hikes.” Recently, New York Fed President John Williams said, per the WSJ, “We are not at restrictive policy yet.” The policymaker also added, “We need to get interest rates higher than longer run a neutral level.”

The firmer China PMI data and the market’s preparations for the US job numbers appear to underpin the latest optimism in the market. However, the European energy crisis, as well as the central bankers’ aggression, seem to challenge the upside momentum.

The US ADP Employment Change for August, the early signal for Friday’s Nonfarm Payrolls (NFP), expected 200K versus 128K prior, will be important to watch for fresh impulse. However, the monetary policy divergence between the Fed and the BOJ could keep the USD/JPY buyers hopeful unless any signals from the Japanese policymakers that target to tame the difference.

Also read: ADP Jobs Preview: Three reasons to expect the data to drive the dollar higher

Technical analysis

USD/JPY justifies the Doji candlestick formation, marked the previous day, as well as the RSI (14) pullback, while directing the intraday sellers towards the August 23 swing high near 137.70. However, the 10-DMA and a three-week-long support line, near 137.45-40, appear a tough nut to crack for the bears.

Alternatively, recovery moves could aim for the horizontal line surrounding 139.00 that comprises multiple tops marked since mid-July.