The high this week briefly touched 137.00 before it all came tumbling back down for USD/JPY in the past two days. The pair is down another 0.5% currently to 135.00 with the low earlier touching 134.75. This comes as we also see a bit of a "peak" in Treasury yields with the bond market suggesting that the narrative has perhaps moved on from an inflation peak per se.
After pushing to near 3.50% two weeks back, 10-year Treasury yields have come down significantly to below 3% today. In essence, we are seeing breakevens fall and market pricing for the Fed's terminal rate also retreat. That is the kind of thing that suggests a potential pivot - or at least a rest - in one of the key market narratives in the past few months.
With the bond market not playing ball anymore, that is perhaps a reason for USD/JPY to take a bit of a breather. There is seemingly a struggle to clear the latest hurdle at 135.00 and though we might still get that eventually (policy divergence still a factor), it perhaps isn't going to come so easily when bond yields have an anchor tied to their foot.
Looking at USD/JPY, short-term support at 134.27 will be one to watch as a break below that opens the path towards retesting 132.00 again. As for buyers, they need a clear daily break above 136.70 to really convince of extending the upside momentum. They have shown appetite to try and get above 135.00 but less firm conviction to really chase a push towards 140.00 for now at least.
