USD/JPY: US yields remain the driving force, awaiting FOMC for direction

Currently, USD/JPY is trading at 109.94, down -0.01% on the day, having posted a daily high at 109.99 and low at 109.81.

USD/JPY continues to recover from the overnight lows down at 109.62. A test of the 20 sma on the hourly stick at 109.92 has opened prospects for territory on the 110 handle. The dollar was mixed overnight as were yields. 

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The 10-year was closing the spread up but without conviction. Markets are concerned about this week's FOMC meeting and what subsequent rhetoric will come from the meeting. Inflation has been put into question and the Fed's target potentially into jeopardy and that has anchored the dollar for much of the year to date so far, DXY is down -4.92%.  

The Bank of Japan meets and their message is patience. Analysts at BBH suggested that it is too early to have a meaningful discussion.  "Although some measures deflation has abated, the Q1 GDP deflator, which some economists argue is a more accurate measure of prices, was minus 0.8%.  The fact that the central bank's balance sheet is growing by less than the JPY80 trillion target ought not be confused with tapering. Our general impression remains that Japanese businesses and officials are content with JPY110-JPY120."

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that the technical readings in the 4 hours chart support a downward extension. "The pair failed to recover above 110.50, the 61.8% retracement of its April/May bullish run, with technical indicators now consolidating within negative territory and the price well below its 100 and 200 SMAs."