USD/JPY Retreats Further From Multi-Year Tops, Depressed Below Mid-113.00s

The USD/JPY pair fell throughout the Asian session, reaching new daily lows in the 113.35 area in the last hour.

The pair saw considerable selling during the first half of trading on Wednesday, erasing a significant portion of the overnight advances to the biggest level since December 2018. This was the first day with a negative move in the previous five sessions, and it was fueled by a number of reasons.

Fears of a return to stagflation, as well as fears about the impact of China Evergrande's financial problem, continued to weigh on investor mood. This, in turn, provided some support for the safe-haven Japanese yen, which proved to be a significant element exerting pressure on the USD/JPY pair.

Bearish traders were also influenced by the overnight drop in US Treasury bond rates, which left US dollar bulls on the defensive. Aside from that, Wednesday's drop might be ascribed to profit-taking in the midst of very overbought conditions on short-term charts.

However, the downside is expected to be cushioned due to expectations of an early Fed policy tightening. Despite Friday's dismal headline NFP reading, markets are persuaded that the Fed would begin unwinding its huge pandemic-era stimulus as early as November.

Markets appear to have begun pricing in the potential of an interest rate rise in 2022, owing to concerns that the current surge in crude oil/energy prices may exacerbate inflation. As a result, the emphasis switches to US consumer inflation statistics, which are coming later in the early North American session.

This will be followed by the release of the FOMC monetary policy meeting minutes. A higher CPI print and/or a more hawkish Fed may lead to additional gains for the US dollar. This, combined with US bond rates and wider market risk sentiment, would give the USD/JPY pair a boost.