- USD/JPY falls and erases most gains from the previous session
- U.S. dollar weakness responds to falling U.S. Treasury yields following worse-than-expected U.S. job openings data for March
- Attention now turns to the FOMC decision on Wednesday
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USD/JPY retreated on Tuesday, falling 0.7% to 136.55 and erasing most of the previous session’s gains, dented by falling U.S. bond rates following disappointing U.S. macroeconomic data. In afternoon trading, yields declined across the Treasury curve, with the 2-year note down 20 bp to 3.94% and the 10-year security down almost 15 bp to 3.43%, nearing its late April lows.
Earlier in the day, the U.S. March JOLTS report showed that employment openings tumbled to 9.59 million, well below expectations of 9.64 million and the lowest level since April 2021, a clear sign that the jobs market is softening, buckling under the weight of overly restrictive monetary policy.
The softening labor market will be welcomed by the Fed to the extent that it may translate into lower wage growth in the coming months, thereby reducing pressure on inflation and the need to keep interest rates “high for longer” to restore price stability. This scenario would stand to benefit the Japanese yen.
Related: US Dollar’s Direction Hinges on Fed’s Policy Outlook, US Labor Market Data
Looking ahead, the Fed’s policy decision will steal the spotlight on Wednesday. In terms of expectations, the FOMC is seen lifting interest rates by 25 basis points to 5.00-5.25%, but there is no general consensus on what forward-guidance will look like.
Overall, the Fed is likely to conditionally suspend its hiking campaign given the recent turmoil in the banking sector, but it would not be surprising if policymakers opt for a more neutral message to keep their options open should further tightening be warranted in the future. Anything less than a clear “pause” signal would be supportive for USD/JPY. Meanwhile, a dovish outlook could act as a strong tailwind for the Japanese yen.
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USD/JPY TECHNICAL ANALYSIS
USD/JPY rallied aggressively late last week and yesterday, but bullish momentum faded after the pair failed to clear technical resistance at 137.75/138.00. The chart below shows how sellers were able to defend this ceiling successfully, regaining control of the market and repelling prices lower from those levels.
If losses extend in the coming days, initial support appears at 135.00, followed by 133.85 – the lower limit of a short-term rising channel. On the flip side, if buyers resurface and trigger a bullish turnaround, the first resistance to consider lies at 136.60, and 137.75/138.00 afterward. On further strength, the focus shifts to 140.00.