USD/JPY bulls approach 135.00 as yield bend reversal extends, center around Shunto talks, US Retail Deals

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The USD/JPY gains bids to extend the day’s recovery from the one-month low.

The yields on US 10-year Treasury bonds remain high, but those on two-year bonds rise.

Despite decreasing concerns about inflation in the United States and alleviating SVB problems, global markets remain risky.

To meet PM Kishida’s demand for a 3% increase, major Japanese companies have promised the fastest rate of pay increases since 1997.


As it extends the previous day’s recovery from the monthly low to 134.55 in the early hours of Wednesday, USD/JPY fluctuates around the intraday high. The Yen-dollar pair cheers the recent widening gap between the yields on US 10-year and two-year Treasury bonds. The fears of a less effective wage increase in Japan and the Bank of Japan’s (BoJ) rejection of the tighter monetary policy could strengthen the upside momentum.

The two-year bond coupons rise to 4.33 percent by press time, but the US 10-year Treasury bond remains mostly under pressure around 3.68%. It is important to note that the yields on US 10-year Treasury bonds experienced their largest daily gain in five weeks the day before, whereas the yields on two-year Treasury bonds recovered from their six-month low.

Prior in the day, the Bank of Japan’s (BoJ) somewhat tentative Financial Arrangement Meeting Minutes supported the USD/JPY potential gain. The Bank of Japan (BoJ) Minutes contained a statement that stated, “It is important to continue with monetary easing.” According to the BoJ Minutes, the members also agreed that Japan’s inflation is likely to slow in the second half of the next fiscal year.

On the other hand, Japan sees positive results from the first rounds of annual wage talks, known as “shunto” talks. These talks aim to keep inflation under control while also keeping the country away from deflation. “The automaker Toyota Motor Corp., one of Japan’s largest, has already pledged significant pay raises. and Fast Retailing, the parent company of the fashion brand Uniqlo,” Reuters said. According to the report, the anticipated wage increase of 3% would satisfy Kishida’s request for a 3% increase but fall short of the ambitious 5% that the Rengo labor umbrella group requested.

In addition, USD/JPY traders are currently enticed by mixed sentiment, upbeat US inflation data, growing optimism regarding the Fed’s 0.25% rate hike in March, and other data. In contrast to their previous readings of 6.4% and 5.6%, the US Consumer Price Index (CPI) and CPI ex-Food and Energy matched market forecasts by 6.0% and 5.5% YoY, respectively, on Tuesday. Following the release of US inflation data, Reuters stated, “The Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May, as a government report showed U.S. inflation remained high in February and concerns of a long-lasting banking crisis eased.”

On the other hand, the USD/JPY pair appears to remain firmer as a result of global policymakers’ inability to convince the market of the risks posed by the most recent events at Signature Bank and Silicon Valley Bank (SVB).

MSCI’s Index of Asia-Pacific shares ex-Japan rose 1.19 percent as of press time, while the S&P 500 Futures remain sidelined despite Wall Street’s optimistic closing.

USD/JPY traders should keep an eye on the US Producer Price Index, NY Empire State Manufacturing Index, and Retail Sales for February, as well as yields and shunto talks, which may provide additional guidelines for Yen pair traders.


About the author

Nafees Saifi // entrepreneur, author, trainer, and stocks and FX trader. 
Nafees Saifi is a professional FX trader from, India. Nafees has extensive experience trading commodities, bonds, and equity futures in the Asian, European, and US markets. Nafees holds a Bachelor of Finance and Economics degree and is focused heavily on Investment Finance and Quantitative Analysis.


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