• USD/JPY picks up bids to restore bullish bias, stays sluggish around two-month high.
• Hopes of economic recovery allow yields to retreat from multi-day top.
• Mixed equities, hawkish BoJ concerns also probe USD/JPY bulls.
• FOMC Minutes, Fed talks favor higher rates, geopolitical fears also underpin US Dollar’s haven demand.

USD/JPY grinds higher around 135.00 as bulls struggle to retake control, after a dismal daily close, despite broad US Dollar strength. The reason could be linked to the retreat in the Treasury bond yields ahead of today’s Japan holiday.

It’s worth noting that the receding economic fears, mainly emanating from the recently firmer global economic data, not just from the US, seemed to have pushed back the bond bears. As a result, the US 10-year and two-year Treasury bond yields marked their first negative daily closing in three while retreating from the highest levels since early November, marked recently. That said, the latest prints of the US 10-year and two-year bond coupons are 3.93% and 4.70% respectively.

Elsewhere, doubts about Bank of Japan (BoJ) Governor Haruhiko Kuroda’s ability to play a masterstroke of the dovish league before he retires in April also seemed to have probed the USD/JPY bulls. On the same line could be the recently firmer inflation and activity numbers from Japan.

Above all, hawkish Federal Reserve (Fed) concerns and geopolitical fears keep the USD/JPY bulls hopeful.

US President Joe Biden thinks that his Russian counterpart isn’t up to using nuclear arms by backing off an international treaty. However, the fears surrounding the Ukraine-Russia war are far from over, with the latest edition of the West and China escalating the matter to the worse. That said, the Wall Street Journal (WSJ) recently said that the US is considering the release of intelligence on China’s potential arms transfer to Russia.

Earlier, comments from China's top diplomat Wang Yi and Russian President Putin weigh on the sentiment and underpinned the rush towards risk-safety, which in turn favored the USD/JPY bulls. China’s Diplomat Wang Yi met Russian President Vladimir Putin and said that they are ready to deepen strategic cooperation with Russia on Wednesday, as reported by Reuters. The Chinese policymaker also added that their relations will not succumb to pressure from third countries. Meanwhile, Putin noted that it's very important for them to have a cooperation with China and said he is looking forward to Chinese President Xi Jinping visiting Moscow.

On the other hand, the latest Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes stated that all participants agreed more rate hikes are needed to achieve the inflation target while also favoring further Fed balance sheet reductions. On the same line, St. Louis Federal Reserve President James Bullard also mentioned that the Fed will have to go north of 5% to tame inflation, as reported by Reuters. The policymaker also stated that he believes there are good chances they could beat inflation this year without creating a recession. Additionally, Federal Reserve Bank of New York President John Williams highlighted the concerns favoring the Fed’s higher rates by saying, per Reuters, “Fed is absolutely committed to getting inflation back to 2%.”

Against this backdrop, Wall Street closed mixed whereas the S&P 500 Futures remain mildly bid of late.

Moving on, Japan’s holiday may restrict USD/JPY moves but the second estimations of the US Personal Consumption Expenditures (PCE) details for the fourth quarter (Q4), as well as the preliminary readings of the US Q4 Gross Domestic Product (GDP), will be important for fresh directions.

Technical analysis

Unless dropping back below the 200-day Exponential Moving Average (EMA) level surrounding 133.80, the USD/JPY bulls occupy the driver’s seat.