USD/JPY: quiet start in Tokyo, eyes on 114 handle, awaiting key US data

Currently, USD/JPY is trading at 113.85, down -0.01% on the day, having posted a daily high at 113.91 and low at 113.75.

Wall Street closes lower, weighed down by retailers

USD/JPY is a slow start in Tokyo today, trading below the 114 handle still despite the previous attempts overnight from 113.45 lows to 114.01 where the pair lost grip again in a short-lived stay. The dollar was unable to capitalise on strong second tier data overnight while US stocks and yields dropped (US 10yr yields fell 1.26bp to 2.4015%) making for a stronger yen. For the rest of the week, markets will turn to the retail sales data and CPI from the US shift tonight as next major catalyst. 

"The reversal of the yen lines up well, with the sell-off in US Treasuries and the widening of the US interest rate premium over Japan," explained analysts at Brown Brothers Harriman. "The US 10-year yield bottomed near 2.16% on April 18. The dollar bottomed against the yen the previous day just above JPY108. The US premium over Japan on 10-year paper bottomed on April 18 around 2.16%."  

USD/JPY technical observations and levels

Technically, Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours chart shows that the Momentum indicator continued sliding towards its 100 level, reflecting limited buying interest. "But the price continues developing above bullish 100 and 200 SMAs, whilst the RSI indicator turned north, now around 56." 

USD/JPY analysis: bullish momentum fading, but next direction not set yet

Support levels: 113.60, 113.20, 112.75. 

Resistance levels: 113.90, 114.15, 114.50, 114.90. 

Analysts at Scotiabank noted that the broader tone remains a key risk for JPY in a low volatility environment, given its vulnerability to knee-jerk haven-driven gains in periods of risk aversion. "Measures of implied JPY volatility are showing some signs of divergence across time horizons, with short-term measures softening as longer-term measures steady. Risk reversals are suggestive of a more decisive turn, firming the premium for protection against JPY strength."