USD/JPY stabilizes above 146.00 as yields, US Dollar retreat, clues about Fed–BoJ divergence eyed

• USD/JPY retreats from YTD high but lacks downside momentum while printing the first daily loss in three.
• Fed’s Powell defends higher rates but cites data-dependency to prod policy hawks.
• BoJ’s Ueda cites inflation concerns to support ultra-easy monetary policy.
• China-inspired risk-on mood, positioning for top-tier data also weigh on Yen pair.

USD/JPY bulls run out of steam as the Yen pair prints the first daily loss in three around 146.30 despite lacking downside momentum ahead of Monday’s European session. In doing so, the risk-barometer pair struggles to cheer China-inspired risk-on mood amid anxiety ahead of this week’s top-tier US data about employment and inflation conditions.

It should be noted that the recently mixed details of Japan’s Coincident Index for June and the Leading Economic Index for the said month also prod the USD/JPY pair traders.

The introduction of one more measure to boost China's economic activity, via halving the current stamp duty of 0.1% on stock trading, favors the sentiment and weighs on the US Dollar of late. On the same line could be the news from the Wall Street Journal (WSJ) which cites people familiar with the decision-making process in China to highlight Chinese Communist Party Chairman Xi Jinping’s deep-rooted philosophical objections to Western-style consumption-driven growth, suggesting more stimulus ahead.

Apart from China-linked optimism, Fed Chair Jerome Powell’s emphasis on data-dependency allowed the greenback buyers to pare recent gains ahead of the Federal Reserve’s (Fed) favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index. Also important to watch will be the monthly US employment data including the headline Nonfarm Payrolls (NFP).

While Fed’s Powell highlighted the importance of incoming data, Bank of Japan (BoJ) Governor Kazuo Ueda cited a bit below target Japan inflation to defend the currently ultra-easy monetary policy. The policymaker also cited a healthy trend in domestic demand and record-high profits that bolstered the business fixed investment to flag the inflation fears. The same bolsters the call for the BoJ’s end to ultra-easy monetary policies, especially after the latest tweak to the Yield Curve Control (YCC) policy.

Against this backdrop, S&P 500 Futures edge higher past 4,420, up 0.10% intraday, whereas the US 10-year Treasury bond yields grind lower to 4.22% after snapping the four-week uptrend by posting minor weekly losses, as well as retreating from the highest level since 2007. That said, the US Dollar Index (DXY) eased from the highest level since June 01 to around 104.05.

Looking ahead, USD/JPY pair traders should seek clues to justify the monetary policy divergence between the BoJ and the Fed for clear directions. As a result, this week’s US employment and inflation data, as well as Japan's Unemployment Rate and Retail Trade will be important to watch. Also crucial will be the risk catalysts like headlines about China and global central bankers’ moves, which in turn will guide yields and the Yen pair.

Technical analysis

USD/JPY buyers remain hopeful unless witnessing a daily closing below 144.90-85 support zone comprising multiple levels marked since late June.