USD/JPY pares intraday losses below 142.00 amid BoJ vs. Fed divergence, sluggish yields

• USD/JPY rebounds from intraday low amid inactive Asian session.
• BoJ’s Noguchi defends easy-money policy to ensure higher wages, Fed Chair Powell’s testimony repeats previous hawkish comments.
• Off in China, cautious mood ahead of multiple central bank announcements restrict yields, Yen.

USD/JPY picks up bids to pare intraday losses around 141.75 amid early Thursday morning in Europe. In doing so, the Yen pair justifies recently dovish commentary from a Bank of Japan (BoJ) Official, versus the hawkish bias of Federal Reserve (Fed) Chairman Jerome Powell.

That said, Bank of Japan (BOJ) board member Asahi Noguchi said on Thursday the central bank must maintain an ultra-loose monetary policy to ensure wages, seen as key to driving inflation to its 2% target, continue to increase as a trend, reported Reuters.

On Wednesday, Japanese Prime Minister Fumio Kishida advocated higher wages while also saying, “Positive moves are appearing in Japan's economy.”

It should be noted that the Bank of Japan (BoJ) Monetary Policy Meeting Minutes for April stated, “Japanese Prime Minister (PM) Fumio Kishida and BoJ Governor Kazuo Ueda agreed that at this point, there was no need to change the joint statement between government and BoJ.” The Minutes statement also said that one member flagged a tweak to the Yield Curve Control (YCC) policy while some debated the risk of being too late in raising rates.

On the same line, BoJ Governor Kazuo Ueda said the previous day that the BoJ will patiently maintain an easy monetary policy to stably and sustainably achieve the 2% price target accompanied by wage growth.

Hence, the policymakers’ defense of the ultra-easy monetary policy to bolster wages exerts downside pressure on the Japanese Yen (JPY), especially when the US Treasury bond yields grind higher.

On the other hand, Fed’s Powell stuck to hawkish bias in bi-annual testimony to the US House Financial Services Committee despite marking the absence of any fresh comments, as well as contrasting statements from other Fed Officials. The same weighed on the US Dollar the previous day. That said, Federal Reserve Bank of Chicago President Austan Goolsbee prod US Treasury yields and underpin the US Dollar weakness as he said that the decision last week was a close call for him. The central bank has to “do more sniffing” before another rate hike, Fed’s Goolsbee added.

It’s worth noting that doubts about China’s rejections of recession woes and the Sino-American tension add strength to the downbeat risk appetite, despite the dicey session.

Amid these plays, Wall Street closed in the negative zone for the third consecutive day while the US Treasury bond yields remained intact after a volatile day. It should be noted that the S&P500 Futures mildly offered for the fourth consecutive day near 4,405 whereas the US benchmark 10-year Treasury bond yields stabilize near 3.72% by the press time.

To sum up, the BoJ vs. Fed divergence puts a floor under the USD/JPY price despite broad US Dollar weakness.           

Technical analysis

Unless providing a daily close below the previous resistance line stretched from early March, around 141.50 by the press time, USD/JPY remains on the bull’s radar.