USD/JPY: BoJ meddling, strong JGB yields tease Yen buyers above 143.00, US ISM Services PMI eyed

• USD/JPY seesaws at three-week high despite latest retreat.
• 10-year JGB yields jump to highest since 2014, BoJ announces unscheduled no-limit bond-buying.
• US Dollar bulls take a breather after US credit rating downgrade, ADP Employment Change favored buyers the previous day.
• A slew of US data eyed for clear directions, yields are the key.

USD/JPY prints mild losses around 143.20 as Japanese authorities take measures to defend the currency during early Thursday. In doing so, the Yen pair also takes clues from the market’s cautious optimism and the US Dollar’s retreat ahead of multiple US statistics.

Earlier in the day, Bank of Japan (BoJ) Governor Kazuo Ueda signaled a wider tolerance limit for the benchmark 10-year Japanese Government Bonds (JGBs) from 0.5% to 1.0%. The move fuelled the JGB yields to the highest level since 2014.

To control the JPY moves, the BoJ also announced an unscheduled bond-buying of 5-year and 10-year notes with no limits.

Recently, Japanese Chief Cabinet Hirokazu Matsuno repeated his favorite statements suggesting the watch on the FX moves, as well as conveying confidence in the BoJ.

On the other hand, the US Dollar Index (DXY) retreats from a three-week high as the market stabilizes after a volatile day. That said, DXY cheered the risk-off mood and benefited from the strong US Treasury bond yields on Wednesday. Also likely to have favored the US Dollar Index bulls were the strong US ADP Employment Change numbers for July.

On Wednesday, Fitch Ratings’ downgrade to the US government credit rating flagged fears of the US default and weighed on the sentiment. Further, US ADP Employment Change for July rose past 189K markets forecasts to 324K while the previous readings were revised down to 455K, which in turn added strength to the Greenback. Furthermore, the US Treasury Department raised possibilities of testing demand for the US bonds after the rating cut by fueling the weekly longer-term debt issuance, which in turn propelled the bond coupons and the US Dollar.

It’s worth noting that the JPY’s haven status and hawkish concerns about BoJ prod the USD/JPY bulls the previous day.

Alternatively, US Treasury Secretary Janet Yellen and White House (WH) Economic Adviser Jared Bernstein defended the credibility of the US Treasury bonds late Wednesday. The policymakers also vouched for the US economic strength after Fitch Ratings’ cited such concerns as the catalysts for their downgrade to the US government credit ratings.

The same could be linked to the latest stabilization in the market. With this, US 10-year Treasury bond yields rose to the highest level since November 2022 whereas the Wall Street benchmarks also closed in the red. That said, the S&P500 Futures remain sidelined at a two-week low after declining in the last two consecutive days.

Looking ahead, US ISM Services PMI, Factory Orders, Weekly Initial Jobless Claims and quarterly readings of Nonfarm Productivity and Unit Labor Costs will be important to watch for USD/JPY traders. Above all, concerns for the BoJ’s hawkish move can check the buyers unless witnessing strong prints from US data.

Technical analysis

Wednesday’s pin bar candlestick on the daily chart prods USD/JPY bulls unless the pair crosses 143.55 hurdle on a daily closing basis.