USD/JPY off lows, testing the 111.50 area

• Dollar trims losses against yen amid higher US yields. 
• Pair testing relevant short-term resistance around 111.50/55. 

The USD/JPY pair bottomed earlier today at 111.27, the lowest level since March 3. During the US session recovered momentum and moved off daily low. The recovery was capped by the 111.50/552 area and as of writing trades at 111.45, down just 20 pips for the day, but big enough to be the worst day since March 22. 

Higher yields help USD vs JPY

The greenback is among the worst performers of the day. The DXY is down 0.32%, trading slightly above 97.00. The bearish pressure eased amid a rebound in US yields. The 10-year rose to 2.51%. In Wall Street, the Dow Jones losses 0.45% and the Nasdaq gains 0.05%. The yen peaked across the board during the Asian session amid risk aversion but then lost momentum and pulled back. Data released today showed a contraction in US factory orders in February. On Wednesday CPI data is due and also the Fed will publish the minutes of its latest meeting. The document will likely reinforce the current “patient” stance of the central bank. 

According to analysts at Commerzbank, arguments remain for stronger yen. “The yield on 10-year Japanese government bonds fell significantly to below 0% again. Nevertheless, or precisely because of this, we are sticking to our forecast of a stronger yen in the long term. The Bank of Japan is now explicitly pointing out that it must keep an eye on the side effects of its longterm ultra-expansionary monetary policy on the profitability of the financial sector and that it is prepared to
take countermeasures if necessary. In our opinion, it will not be able to avoid higher interest rates and a stronger yen in the long term.”

USD/JPY  Levels to watch 

To the downside, support levels are seen at 111.20 followed by the key 111.00 (20-day moving average). A close below should point to more losses. On the upside, the pair is testing the 111.50/55 area, a critical level ahead of the next sessions. It is the 20 and 33 moving average in the four hours chart, and a break higher would strengthen the US dollar. Above resistance levels might be seen at 111.80 and 112.00.