Bulls Propel USD/JPY to 136.00 on Firmer Yields, US Debt Ceiling Worries, And Ueda's Dovish Bias
The USD/JPY fluctuates near its greatest level in a week and reveals a three-day uptrend. Yields continue to climb due to the US debt ceiling and banking difficulties, as well as the Fed's hawkish comments. BOJ's Ueda defends loose money policy; Japan's prime minister Kishida will order government and BOJ assessment of wage outlook. Softer Japan PPI and lackluster US inflation signals fail to impress Yen traders.

As Tokyo opens on Monday, USD/JPY shows a three-day winning trend near 135.80 despite recently retreating from the highest level in eight days. In doing so, the Yen pair draws cues from the broad US Dollar strength amid a risk-off sentiment, as well as cheers for recently weaker Japan data and dovish remarks from Bank of Japan (BoJ) Governor Kazuhiro Ueda.
Recently, the Producer Price Index (PPI) for April in Japan declined to 0.2% MoM and 5.8% YoY, compared to 0.3% and 6.0% expected, respectively. The softer inflation data supports BoJ Governor Ueda's defense of the central bank's loose money policy. "The central bank will maintain ultra-low interest rates until the recent cost-push inflation transforms into sustained price growth driven by robust domestic demand and accompanied by higher wages," BoJ's Ueda said in his most recent remarks as reported by Reuters.
Fed Governor Philip Jefferson and St. Louis Fed President James Bullard, on the other hand, defend the US central bank's current monetary policy while citing higher inflation as a significant challenge. Friday, Federal Reserve (Fed) Governor Michelle Bowman stated, "policy rates will need to remain sufficiently restrictive for some time."
In contrast to BoJ's Ueda, Fed policymakers' comments are not supported by US data as preliminary readings of the University of Michigan's (UoM) Consumer Confidence Index for May fell to 57.7 from 63.5 previously versus market expectations of 63.0. More curiously, one-year inflation expectations fell from 4.6% to 4.5% in the given month, while their 5-year counterpart rose to its highest level since 2011 from 3.0% to 3.3%.
Moreover, concerns that the United States might default in early June if the debt ceiling isn't changed soon appear to impact on market sentiment and support the US Dollar's ascent, thereby fueling the USD/JPY. Fears emanated from US banks at the same time that some of the mid-tier banks experienced significant declines in share prices and deposits over the past week.
It should be noted that the cautious sentiment preceding Japan's prime minister Fumio Kishida's assessment of wages appears to spur USD/JPY investors. Reuters reported on Sunday that Japanese Prime Minister Fumio Kishida will issue an order on Monday directing the government and the central bank to determine whether recent wage increases are sustainable.
Wall Street closed with losses, US Treasury bond yields remain firmer, and S&P 500 Futures are showing slight losses as of press time.
The US NY Empire State Manufacturing Index for May and Japan's PM Kishida's orders will be closely watched to determine the immediate direction of the USD/JPY. Updates to the US debt ceiling will be more crucial for establishing direction. In addition, the Fed's remarks advance of US Retail Sales, Fed Chairman Jerome Powell's speech, and preliminary estimates of Japan's first-quarter Gross Domestic Product (GDP) will be significant.
Bonus rebate to help investors grow in the trading world!