USD/JPY - Recovery stalls at 38.2% Fib hurdle, yield differential at 1-month high

• USD/JPY recovery stalls at 111.41 - 38.2% Fib.
• 10Y US-Jap spread hits at one-month high, favors upside in USD.

USD/JPY remains bid in Asia but lacks the vigor to cut through 111.41 (38.2% Fib R of Jan. 1 high - Jan. 17 low) despite widening yield differential.

The 10-year US-Japan yield spread rose to 266 basis points today; the highest level since Dec. 21. Also, previous day's bullish outside day candle indicates the pair has likely made a short-term bottom at 110.19.

Further, the Bank of Japan (BOJ) officials believe the ultra-easy monetary policy is needed for now and are of the opinion that the markets have run ahead of themselves. Thus, unwinding of Yen longs may gather pace.

Meanwhile, the USD could remain well bid as the Fed's Beige book (released yesterday) is said to have opened doors for a March rate hike.  Kathy Lien from BK Asset Management expects the USD/JPY to extend the rally to 112.00 regardless of today's housing reports and Philadelphia Fed index.

USD/JPY Technical Levels

A move above 111.41 (38.2% Fib R of Jan. 8 high - Jan. 17 low) would expose 111.79 (50% Fib R) and 112.00 (zero levels). On the downside, breach of support at 110.95 (23.6% Fib R) could yield a sell-off to 110.19 (yesterday's low) and 110.00 (psychological support).