USD/JPY justifies risk-barometer status above 139.00, ignores softer yields, Fed bias

• USD/JPY picks up bids to renew weekly top amid firmer sentiment.
• Dovish concerns about BoJ supersede fears of Fed policy pivot past July.
• Yields drop as market players rush toward bonds amid mixed mood.
• Downbeat economics from Tokyo fuel Yen pair ahead of Japan inflation.

USD/JPY buyers cheer the risk-on mood, as well as the US Dollar’s rebound, as it renews the weekly top around 139.50 amid the early hours of Wednesday’s European session. In doing so, the Yen pair justifies dovish concerns about the Bank of Japan (BoJ) while ignoring downbeat Treasury bond yields and chatters about the US Federal Reserve’s pause in rate hikes after July.

Talking about the risk barometers, Japan’s Nikkei 225 rises more than 1.0% and the S&P500 Futures edges higher at the yearly top amid upbeat sentiment. However, the US 10-year and two-year Treasury bond yields stay pressured at 3.76% and 4.74% by the press time and prod the USD/JPY bulls of late.

While tracing the major catalysts, the mixed headlines surrounding China and optimism in the equity markets gain major attention. That said, China Industry Ministry recently conveyed fears of insufficient demand and declining revenues and justifies the downbeat Gross Domestic Product (GDP) data for the second quarter (Q2) that suggested fears of easing economic recovery in the world’s biggest industrial player. Considering China’s status as one of the biggest oil users, downbeat economic concerns about the dragon nation weigh on the commodity price. On the other hand, the US banks expect more profits from the higher rates and push back recession woes, which in turn allow the sentiment to remain firmer and challenge the US Dollar bulls of late.

Elsewhere, Bank of Japan (BOJ) Governor Kazuo Ueda spoke at a news conference after the G20 meeting in India on Tuesday while stating that there was still some distance to sustainably achieve the 2% inflation target, defending the easy-money policy in turn.

Furthermore, fears surrounding Japan Prime Minister (PM) Fumio Kishida’s cabinet reshuffle and pessimism among the big industrial houses from Tokyo weigh on the Japanese Yen (JPY) and favor the USD/JPY bulls.

Alternatively, the latest Reuters poll of around 109 economists suggests that the Fed’s widely anticipated 25 basis points (bps) rate hike in July will be the last increase of the current tightening cycle. Even so, Tuesday’s upbeat prints of the US Retail Sales Control Group for June underpin the chatters that the Fed will keep the rates higher for longer, if not lifting the rates further toward the north. The same views allow the US Dollar Index (DXY) to edge higher around 100.15, after bouncing off the 15-month low surrounding 99.55 the previous day.

Looking forward, the US housing numbers and risk catalysts may entertain the USD/JPY traders ahead of Friday’s key Japan inflation gauge.

Technical analysis

A daily closing beyond the four-month-old support-turned-resistance, around 139.60 by the press time, becomes necessary for the USD/JPY bulls to retake control.