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USD/JPY bulls hit 135.00 as yield curve inversion deepens, with attention focused on Shunto negotiations and US retail sales.

by Elena Martin   ·  March 15, 2023   ·  
To continue the previous day’s recovery from a one-month low, USD/JPY pulls up bids. US 10-year Treasury bond rates stay tight during their two-year counterpart climb.

Despite diminishing SVB problems, global markets are still risky due to waning US inflation worries. To comply with Prime Minister Kishida’s request for a 3% increase, major Japanese companies have promised the fastest pace of pay increases since 1997. Early on Wednesday, the USD/JPY oscillated around its intraday high as it rebounded from its monthly low from the previous day. In doing so, the Yen pair applauds the recent increase in the gap between the rates on US Treasury bonds with terms of two years and ten years. Fears of a less effective wage rise in Japan and the Bank of Japan (BoJ) policymakers’ rejection of the tighter monetary policy may strengthen the upward momentum.

Although the rebound from the previous day has almost disappeared from the US 10-year Treasury bond, the two-year bond yields have increased to 4.33% as of press time. It’s important to note that as the two-year counterpart rebounded from the six-month low, the US 10-year Treasury bond rates had their largest daily rise in five weeks the day before.

The upside in the USD/JPY was supported earlier in the day by the Bank of Japan’s (BoJ) slightly dovish Monetary Policy Meeting Minutes. The Bank of Japan (BoJ) Minutes statement emphasized the need for continuing monetary easing. The members of the BoJ also concurred that Japan’s inflation is anticipated to slow down in the second half of the next fiscal year, according to the BoJ Minutes.


On the other hand, as the Asian power seeks to manage inflation while also wishing to avoid deflationary circumstances, Japan observes encouraging outcomes from the opening rounds of annual salary negotiations, notably known as “shunto” talks. According to Reuters, “several of Japan’s top companies have already offered hefty pay raises,” including automaker Toyota Motor Corp. and the parent company of the clothing line Uniqlo. According to the report, the expected 3.0% increase in pay would fulfill Kishida’s desire for a 3% increase but fall short of the ambitious 5% demand made by the Rengo labor umbrella organization.

Moreover, disappointing US inflation statistics, growing confidence that the Fed will raise interest rates by 0.25% in March, and conflicting emotions have entertained USD/JPY traders lately. In contrast to their respective prior readings of 6.4% and 5.6%, the US Consumer Price Index (CPI) and CPI ex-Food and Energy met market expectations on Tuesday of 6.0% and 5.5% YoY. Following the release of US inflation data, Reuters reported that “the Federal Reserve is seen raising its benchmark rate by a quarter of a percentage point next week and again in May,” as concerns over a protracted banking crisis subsided and a government report revealed that US inflation remained high in February.

In contrast, the USD/JPY pair is supported by the incapacity of international officials to persuade the market of the dangers posed by the most recent scandals involving Silicon Valley Bank (SVB) and Signature Bank.

Despite Wall Street’s cheerful ending, the S&P 500 Futures remain inactive, reflecting the mood, although, at press time, MSCI’s Index of Asia-Pacific Shares ex-Japan had increased by 1.19%.


Key indicators for USD/JPY traders to keep an eye on include the US Producer Price Index, NY Empire State Manufacturing Index, and Retail Sales for February, while yields and shunto negotiations might provide further guidance for traders of the Yen pair.

Technical analysis

A region constrains the immediate USD/JPY upside at 135.05–15, with numerous peaks set since February 17. Even if the quotation follows the bullish MACD signals and overcomes the 135.15 barriers, it will be essential to keep an eye on the convergence of the 50-SMA and the 100-SMA, which will be around 135.65-70 by the time of press.

Meanwhile, a five-week-old horizontal support zone between 133.90-85 is a difficult nut for the bears of the Yen pair to break.

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