USD/JPY traces sluggish yields above 130.00 as Yen traders await BoJ Summary, US GDP and Fed

• USD/JPY prints mild gains after reversing from weekly top the previous day.
• Yields remain sidelined as traders await more clarity on growth prospects, Fed moves.
• US PMIs were mixed but downbeat equities and higher prints of inflation data elsewhere allowed yields/USD to defend Yen buyers.
• Light calendar ahead of US GDP, FOMC restricts immediate moves.

USD/JPY floats above 130.00, printing mild gains around 130.30 by the press time, amid sluggish markets on early Wednesday. In doing so, the Yen pair takes clues from the inactive Treasury bond yields amid a lack of data/events at home. Also likely to restrict the quote’s immediate moves could be the market’s cautious mood ahead of the Bank of Japan’s (BOJ) Summary of Opinions and US Gross Domestic Product (GDP) for the fourth quarter (Q4), not to forget the next week’s Federal Open Market Committee (FOMC) meeting.

That said, the US 10-year Treasury bond yields drop 1.5 basis points (bps) to 3.45% while the two-year counterpart posted the biggest daily loss in a week around the 4.15% level. It should be noted that the S&P 500 Futures drop half a percent to 4,012, extending the previous day’s U-turn from the 1.5-month high.

While Wall Street’s mixed closing and the US Dollar’s failure to cheer the improvement in January PMI underpin USD/JPY weakness, together with hawkish bias from the BoJ, the market’s preparations for the next week’s Fed meeting propel the Yen pair.

It should be noted that Tuesday’s technical glitch joined the mixed earnings report to confuse equity traders the previous day. “Fourth quarter earnings season is in full swing, with 72 of the companies in the S&P 500 having reported. Of those, 65% have beaten consensus, just a hair below the 66% long-term average, according to Refinitiv,” said Reuters.

On the other hand, the US Dollar Index (DXY) remains pressured as the US activity data for January remained below 50.0 level and suggested contraction despite improving a bit.

The US PMIs moderated in the last few months but the growth is yet to witness as January’s US S&P Global Composite PMI for January increased to 46.6 from 45.0 prior and the 44.7 consensus, marking the seventh consecutive read below 50. It’s worth observing that preliminary readings of the US S&P Global Manufacturing PMI for January rose past 46.2 market forecast and 46.1 market expectations with 46.8 figure while the Services PMI followed the suit with the 46.6 figure for the said month, versus 44.5 forecast and 44.7 prior.

Amid these plays, Fed fund futures signal the market’s receding hawkish bias. “Fed fund futures see only two more quarter-point rate hikes by the Fed to a peak of around 5% by June, before it starts cutting rates later in the year. The Federal Reserve itself has insisted it still has 75 bps of increases in the pipeline,” said Reuters.

To sum up, USD/JPY portrays the typical pre-data anxiety while defending the 130.00 round figure. However, bears have an upper hand considering the hawkish bias surrounding BoJ.

Technical analysis

A two-month-old bearish channel restricts USD/JPY moves between 132.00 and 125.90.