USD/JPY refreshes six-year top around 121.50 tracking US T-bond yields, BOJ signals

• USD/JPY rises for the fifth consecutive day while poking 2016 peak.
• Hawkish Fedspeak underpins US Treasury yields ahead of PMI, Durable Goods Orders.
• BOJ’s Kataoka, Minutes of latest meeting favor yen bears.
• Biden’s Europe visit for NATO Summit will be crucial, grim news for Russia-Ukraine can extend latest run-up.

USD/JPY buyers keep reins for the fifth day in a row, up 0.20% intraday around 121.40 heading into Thursday’s European session.

In doing so, the yen pair renews the highest levels since January 2016 during the five-day uptrend.

The underlying strength in the US Treasury yields seems to have favored the USD/JPY bulls of late. Also supporting the bulls are the headlines from the Bank of Japan.

That said, the US 10-year Treasury yields rise 2.2 basis points (bps) near 2.34% at the latest, following a pullback from a three-year high on Wednesday. The hawkish Fedspeak has been the key reason for the latest bond rout that propelled yields and favors the greenback buyers. The talks over 50 basis points (bps) of a Fed rate-lift and Quantitative Tightening (QT) in May were recently backed by St Louis Fed President James Bullard and Cleveland Fed President Loretta Mester.

On the other hand, the Bank of Japan’s (BOJ) readiness to extend the easy money policies joins comments from BOJ board member Goushi Kataoka, to weaken the JPY prices. BOJ’s Kataoka said, “Weak JPY positive for the economy as a whole.”

Elsewhere, the US readiness to levy more sanctions on Russia, as well as help Ukraine, weigh on the market sentiment ahead of President Biden’s meeting with the North Atlantic Treaty Organization (NATO) allies in Europe. Russian President Vladimir Putin’s readiness to ask for oil payment in ruble to ‘unfriendly’ nations and covid woes in China, as well as Europe, also challenges the mood.

In addition to the Fedspeak and risk catalysts, the preliminary reading of the US Markit PMIs for March and Durable Goods Orders for February will also be important for USD/JPY traders to track.

Forecasts suggest that the US Markit Manufacturing PMI may weaken to 56.3 from 57.3 previous readouts whereas the Services PMI seemed to have dropped to 56.0 from 56.5. Further, the US Durable Goods Orders growth for February is likely turned negative with -0.5% forecasts versus 1.6% prior.

Technical analysis

January 2016 top surrounding 121.70 seem to lure the USD/JPY buyers while the overbought RSI may test the pair’s upside afterward. Alternatively, pullback moves may aim for the year 2017 peak of 118.60.