USD/JPY Posts Modest Advances Above 134.00 As Negative Mood And Fed Worries Combine With Higher Rates

USD/JPY sets intraday high near the mid-134.00s as it picks up bids to reverse the previous day’s fall from a multi-day high on early Monday. In doing so, the Yen pair reflects the broad US Dollar rise amid moderately pessimistic sentiment and the US and Canadian vacations.

Nonetheless, geopolitical concerns regarding China, North Korea, and Russia have recently weighed on market mood, despite the short calendar and absence of US/Canadian traders limiting momentum.

During the weekend, North Korea fired two ballistic missiles toward Japan and revived the suspicions that the hermit kingdom is up to something serious that can endanger the global economy, primarily due to the nature of the missiles fired as they both were characterized as tactical nuclear assault weapons.

In a similar vein, the most recent meeting between US Secretary of State Antony Blinken and China's top diplomat Wang Yi did not appear to have restored US-China relations. The cause may be related to a Chinese diplomat's statement that the United States must alter course and repair the harm caused to Sino-American relations by the indiscriminate use of force. On the same line, US envoy to the United Nations, Ambassador Linda Thomas-Greenfield, stated Sunday that China would cross a “red line” if the country decided to provide lethal military aid to Russia for its invasion of Ukraine.

Elsewhere, better-than-forecast prints of the US Consumer Price Index (CPI) and Retail Sales followed the previously flashed bullish readings of employment and output statistics and boosted the US Treasury bond yields, as well as the US Dollar. On the same line might be the hawkish Federal Reserve (Fed) comments and the risk-negative factors listed above.

As reported by Reuters, Fed Governor Michelle Bowman stated recently, "We are witnessing a great deal of conflicting economic data." Thomas Barkin, president of the Richmond Federal Reserve, stated, as reported by Reuters, that they are observing some progress in inflation due to the normalization of demand.

It should be highlighted that the mixed leaning for the Bank of Japan’s (BoJ) new monetary policy board and chatters of greater inflation in Japan tend to put a floor under the Yen.

Among these bets, the S&P 500 Futures print minor losses even as Wall Street closed neutral. It’s worth noting that the US 10-year Treasury bond yields soared to the highest levels since early November in the last week and helped the DXY to print a three-week rise.

Going forward, Japan’s National Core Inflation statistics will join the second reading of the US fourth quarter (Q4) Gross Domestic Product to guide immediate USD/JPY swings. Nonetheless, the Federal Open Market Committee (FOMC) Meeting Minutes will receive the most focus.