USD/JPY struggles above 139.50 amid cautious markets, downbeat yields and BoJ Governor Ueda’s inflation woes

• USD/JPY remains sidelined after reversing from six-month high in the last two days.
• BoJ’s Kuroda cites inflation woes but defends easy monetary policy.
• Fears of US default, anxiety ahead of key employment signals weigh on sentiment, put a floor under US Dollar.
• Yen sellers need validation from US House, Treasury bond yields.

USD/JPY struggles to portray the market’s slightly downbeat sentiment, as well as hesitates to justify the Bank of Japan (BoJ) Governor Kazuo Ueda’s comments, amid an unimpressive Wednesday morning in Europe. That said, the Yen pair treads water around 139.75 by the press time while pausing the two-day losing streak from the highest levels since November 2022.

While portraying the mood, the S&P500 Futures remain indecisive, mildly offered around 4,120 by the press time, after a mixed Wall Street close whereas the US Treasury bond yields stay depressed of late. Furthermore, the US Dollar Index (DXY) picks up bids to around 104.25, after snapping a six-day uptrend near the highest levels in 10 weeks.

Earlier in the day, BoJ Governor Kazuo Ueda highlighted inflation woes in the nation and renewed hawkish bias for the Japanese central bank. However, the policymaker also said, “Whether inflation is caused by demand or supply has very important implications for monetary policymaking.” On the same line, Japanese data were also mixed for April as Industrial Production improved on YoY but eased on MoM whereas the Large Retailer Sales rose heavily during the said month.

Elsewhere, mixed US data joins fears of economic slowdown, backed by Richmond Fed Thomas Barkin’s comments, to underpin the markets’ cautious mood and weigh on the USD/JPY prices. On the same line could be the anxiety ahead of the key data/events as the US Republicans show readiness to vote down the agreement to avoid the debt-ceiling expiration. Additionally, the hawkish Fed bets and fears of economic slowdown, should the US default on its debt payment, also weigh on the market sentiment and USD/JPY price.

However, the DXY cheers the market’s optimism that the US policymakers will anyhow avoid the default and will enable the Federal Reserve to keep the rates higher for longer.

Looking forward, the House voting on the US debt ceiling deal will be crucial for immediate direction. Also important to watch is the US JOLTS Job Openings for April, expected 9.375M versus 9.59M prior, as well as the Chicago Purchasing Managers' Index for May, likely to fall to 47.0 from 48.6.

Technical analysis

A daily closing below the three-week-old previous support line, now immediate resistance near 140.80, directs USD/JPY bears toward the 10-DMA support of 139.40.