USD/JPY traces sluggish US Treasury bond yields near 132.50, US GDP eyed

• USD/JPY fades recovery from four-month low, struggles to consolidate BOJ-led losses.
• US 10-year Treasury bond yields retreat from monthly high.
• BOJ announced unscheduled bond buying after shocking markets with YCC tweak.
• Final readings of US Q3 GDP, Fed’s preferred inflation gauge eyed for fresh impulse.

USD/JPY remains sidelined around 132.50, struggling to extend the previous day’s recovery from a four-month low, as markets in Tokyo begin Thursday’s trading with no major excitement.

The reason could be linked to the absence of major data/events, as well as mixed concerns surrounding the risk catalysts and holiday mood. Adding strength to the dullness could be the cautious mood ahead of the US Gross Domestic Product (GDP) for the third quarter (Q3) and Core Personal Consumption Expenditure (PCE) details for Q3.

It’s worth noting that the sluggish performance of the US Treasury bonds also challenges the USD/JPY prices amid an inactive Asian session. That said, the US 10-year Treasury bond yields remain sidelined near 3.66% after retreating from the monthly high of 3.72% the previous day. On the other hand, the US two-year bond coupons remain pressured around 4.22% after a two-day downtrend.

While the bond coupons seem to pare the Bank of Japan (BOJ)-led gains, the BOJ’s unscheduled bond buying operation, announced Wednesday, also weighed on the Treasury yields. On Wednesday, the BOJ offered to buy JPY200 billion worth of Japanese Government Bonds (JGBs), including JPY100 billion 3-5 Year and JPY100 billion 5-10 Year.

Elsewhere, firmer US data and fears emanating from Russia seem to challenge the USD/JPY bears amid mixed sentiment. That said, the US Conference Board’s (CB) Consumer Confidence jumped to the eight-month high of 108.3 for December, compared to the market forecasts of 101.0 and the revised prior readings of 101.40. On the other hand, Ukrainian President Volodymyr Zelensky’s US visit and Russian President Vladimir Putin’s readiness to increase the country’s military potential challenge the risk appetite.

While portraying the mood, Wall Street closed positive and the US Treasury yields retreated. Even so, the US Dollar Index (DXY) snapped a two-day downtrend. It’s worth noting that the S&P 500 Futures remain mildly bid of late.

Moving on, the year-end inaction could restrict USD/JPY pair moves amid a light calendar. It’s worth noting that the US GDP is expected to confirm 2.9% Annualized growth in Q3 while the Core PCE is anticipated to also meet the initial forecasts of 4.6% QoQ during the stated period. Also important will be Friday’s Core PCE Price Index for November, the Fed’s preferred inflation gauge. Furthermore, Japan’s Coincident Index and Leading Economic Index for October could offer immediate directions.

Technical analysis

The oversold RSI conditions join August month’s low to challenge USD/JPY bears around 130.40. The latest attempts to rebound, however, remain elusive unless crossing the early December low near 133.65.