• USD/JPY lost its traction after rising to multi-month highs.
  • Falling US Treasury bond yields seem to be weighing on the pair.
  • US Dollar Index clings to strong daily gains above 91.70.

Following Wednesday’s upsurge, the USD/JPY extended its rally and reached its highest level since early April at 110.82. However, the pair reversed its direction in the second half of the day and was last seen losing 0.25% on a daily basis at 110.40.

Despite the unabated USD strength, a sharp decline witnessed in the US Treasury bond yields seems to be weighing on USD/JPY. At the moment, the benchmark 10-year US T-bond yield is down 2.3% on the day at 1.541%.

On Wednesday, the hawkish shift seen in the FOMC’s Summary of Projections provided a boost to the greenback. With the number of policymakers expecting a lift-off in the fed funds rate from zero in 2023 rising to 13 from seven in March, the US Dollar Index (DXY) gained nearly 1% on a daily basis. At the moment, the DXY is up 0.42% on the day at 91.77.

Earlier in the day, the data published by the US Department of Labor revealed that the weekly Initial Jobless Claims rose to 412,000 from 375,000. Nevertheless, this data failed to trigger a meaningful market reaction.

Eyes on BoJ

On Friday, the Bank of Japan (BoJ) will announce its Interest Rate Decision and release the Monetary Policy Statement.

Previewing this event, “We still keep our view for the BoJ to do more and enhance its monetary policy easing further, most likely through re-accelerating its GB to Japanese corporates and SMEs,” said Lee Sue Ann, Economist at UOB Group. “Market expectations are now tilted to the BoJ having reached the end of the line on normalization and will remain in a holding pattern on the policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ.”

Technical levels to watch for