Stretched yen longs are facing an intraday setback though they're unlikely to exit their positions.

Higher Treasury yields, following comments from Commerce Secretary Howard Lutnick about potentially lowering tariffs in the future, are supporting USD/JPY.

However, Thursday's report of a four-year high in Challenger layoffs and an increase in continuing claims indicates a slowing U.S. economy. Philadelphia Fed President Patrick Harker highlighted the growing risks to the economy after this data. If U.S. non-farm payrolls were to come in weak on Friday, expectations of Fed rate cut at the May meeting would probably rise from current market projections of even odds.

Two additional factors may limit a USD/JPY rebound. First, pressure on the greenback is coming amid dramatic changes in U.S. trade policy and as Europe makes historic efforts to take charge of regional security, which could raise questions about the relative attractiveness of the U.S. currency.

Second, rising JGB yields, whether due to domestic inflation pressures or reactions to spending abroad, are likely to attract passive yen buyers in fixed income. The sum of these factors could help explain why the options market is bearish USD/JPY longer term. One-year risk reversals in the pair are back at October levels, just prior to the U.S. election. While USD/JPY has risen back above Tuesday's low at 148.10, there are additional levels to climb above in order to scare dollar bears. They include 149.12, the February 26 doji close, and 149.53, the 9-day exponential moving average.
Yen

(Robert Fullem is a Reuters market analyst. The views expressed are his own.)