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USD/JPY trims gains as yield spread remains unchanged despite dovish Kuroda

  • USD/JPY backs off from session highs.
  • Yield differential  remains unchanged despite dovish Kuroda.

The Dollar-Yen pair has retreated from the session high of 114.74 as the 10Y US-Japan bond yield differential showed no signs of life despite dovish BOJ minutes and Kuroda.

As of writing, the USD/JPY pair is trading at 114.37 levels. The 10Y US-Japan yield differential (spread) remains flat lined at 230 basis points (bps).  

Yen came under pressure after the minutes of the Bank of Japan's (BOJ) latest policy meeting showed increasing support for more monetary easing. Meanwhile, Kuroda stressed the need to keep the policy accomodative and said the exit from QQE will happen only after the 2 percent inflation target is achieved,

The dovish comments from the central bank usually result in higher bond prices (lower yields). However, the Japanese yields remain dead flat. More importantly, the difference or the spread between the 10-year US bond yield and Japanse bond yield hasn't moved. This may have forced Yen sellers to reconsider their strategy.

Looking ahead - the focus remains on the yield differential and broader market sentiment. Fed's Yellen speech due at 13:00 GMT could influence the demand for the US dollars.

USD/JPY Technical Levels

FXStreet Valeria Bednarik writes, "technically, the pair is neutral-to-bullish, but at the upper end of its last eight-month range, which increases the risk of a bullish extension. In the daily chart, the price is developing well above the 100 and 200 SMAs, both converging around 111.35, while technical indicators lost momentum, but remain above their mid-lines. In the 4 hours chart, the moving averages maintain their bullish slopes below the current level, but the Momentum diverges lower, currently pressuring its mid-line, while the RSI heads south around 54,  suggesting the pair may ease early Monday. Anyway, the upward potential won't be at risk unless the pair breaks below the 113.25 support."

Support levels: 113.60 113.25 112.80

Resistance levels: 114.40 114.85 115.10

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