USD/JPY movements continue to be heavily linked to movements in bond yields, and more specifically US Treasury yields. This is evident in the hourly chart below.
USD/JPY vs. US government bond 10-year yield (%) hourly chart
The recovery of the 10-year bond yield to near 4% has also led to a rebound in USD/JPY from the current 141.00 level to the 142.60 level this week. Of note is the push back above the 100-hour moving average (red line) and 200-hour moving average (blue line), the latter coming into play today. This would likely shift the short-term bias in the currency pair to a more bullish direction once again.
That said, much of the recent rebound in USD/JPY and bond yields appears to be a correction of sorts. This comes after a steady decline in the dollar since November, when it appeared to have peaked.
For USD/JPY, the 200-day moving average at 143.11 is the key resistance level to watch at the moment. By holding below, sellers maintain downside momentum, but there is room for further breakout and correction.
At some point, the Bank of Japan will come back as it did in December. Its next policy meeting is scheduled for January 23, but the central bank is still looking for signs of a policy shift, with policymakers hinting at spring wage negotiations in March or April before committing to anything. may not have been shown yet.
However, it remains an important risk event to keep in mind, especially as the Japanese Yen has the potential to be one of the most interesting major currencies this year.
