USD/JPY Climbs As Yield Gap Widens

USD/JPY added a handful of pips Wednesday, clawing back initial losses in NY hours as U.S. Tsy yields advanced. Both sides of the pair remained the best G10 performers as participants assessed the economic outlook amid familiar challenges.

• Wednesday saw U.S./Japan 10-Year yield spread widen a tad as expectation-beating U.S. Services PMI data reduced demand for Tsys despite lingering recession fears, while Fed minutes reaffirmed policymakers' commitment to tightening monetary conditions to curb inflation.
• Spot USD/JPY last deals at Y136.03, up 8 pips on the day, with yen now replacing sterling as the worst G10 performer.
• From a technical standpoint, bulls need a break above Jun 29 high of Y137.00 to gain some fresh impetus and take aim at Y137.30, the 1.50 proj of the Feb 24 - Mar 28 - 31 price swing. Bears look for a retreat towards Jun 23 low of Y134.27.
• The BoJ is looking to raise its FY2022 inflation forecast to above +2.0% Y/Y from the current +1.9%, Jiji reported without attribution. The change will be implemented in the Bank's quarterly outlook report, due for release on July 21.
• Looking ahead, Japan's BoP current account balance, household spending & Eco Watchers Survey will print on Friday.