USD/JPY Retreats Further From YTD Peak, Drops To 138.00 As Traders Look To Fed’s Powell

The USD/JPY pair came under some selling pressure on Friday and, for now, seems to have snapped a six-day winning streak to its highest level since November 2022, around the 138.75 region touched the previous day. Spot prices extend the steady intraday descent through the early part of the European session and drop to the 138.00 mark, or a fresh daily low in the last hour.

The US Dollar (USD) bulls opt to take some profits off the table following the recent runup to a nearly two-month high, which, in turn, is seen as a key factor dragging the USD/JPY lower. However, the downside for the USD remains cushioned amid firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. On Thursday, Dallas Fed President Lorie Logan said that the economic data points don’t justify skipping a rate increase at the next policy meeting in June. This comes from the recent hawkish comments by several Fed officials and forces investors to scale back their bet for rate cuts later this year.

The latest optimism over the potential of lifting the US debt ceiling keeps the US Treasury bond yields elevated. Top US congressional Republican Kevin McCarthy noted that negotiations are better than last week and expected a bill to raise the government’s $31.4 trillion debt ceiling on the House floor next week.  This, in turn, favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/JPY pair. The Bank of Japan’s (BoJ) dovish stance and a positive risk tone could undermine the safe-haven Japanese Yen (JPY) and limit losses for the major.

The BoJ Governor Kazuo Ueda offered his take on the hot Japanese National Core CPI report released this Friday and said that 
Inflation will likely fall below the 2% target level in the middle of the current fiscal year. Ueda added that tightening monetary policy in response to this would hurt the economy and that the BoJ would continue easing with yield curve control. This warrants some caution before placing aggressive bearish bets around the USD/JPY pair and positioning for a further intraday depreciating move.

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell’s appearance later during the US session. Investors will look for clues about the US central bank’s next policy move, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. Apart from this, the US debt-limit negotiations might further contribute to producing short-term trading opportunities. Nevertheless, spot prices remain on track to register strong weekly gains.

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