USD/JPY retreats from 115.00 amid flat US bond yields, USD bulls take a breather

• USD/JPY slides from year-to-date tops near 115.00, as USD bulls take a breather.
• Money market futures have fully priced in a Fed 25 basis point rate hike by July 2022.
• The US 10-year Treasury yield and the US dollar are flat in the session, thus strengthening the Japanese yen.

The USD/JPY struggles at the 115.00 figure, is down 0.24%, trading at 114.55 during the New York session at the time of writing.  Sentiment-wise, the market is a mixed bag, as European stocks fluctuate between gainers and losers. Also, US equity indices seem poised to open down, as futures trade in the red at press time, as investors worried about early rate hikes by the Federal Reserve on robust economic data. 

In the overnight session, the USD/JPY attempted an attack towards the 115.00. However, it did not have the strength to overcome strong resistance, thus retreating towards Wednesday’s daily central pivot point at 114.57, where it found some buying pressure, jumping towards the 114.70 area.

The US Dollar Index, steady around 95.90, USD bulls prepare an attack towards 96.00

In the meantime, money markets futures have fully priced in a 25 basis point rate hike by the US central bank by July 2022, one month after the Federal Reserve stops buying assets. After a 30-year spike in the US CPI, investors seem convinced that the Federal Reserve will need to act fast, to curb elevating prices, reflecting it, in the bond market. Further, the US 10-year yield advances one basis point, sitting at 1.64%, acting as a headwind for the USD/JPY.

The US Dollar Index, which measures the buck’s performance against a basket of its peers, is flat in the day, at 95.90, underpinned by the US 10-year benchmark note.

Putting this aside, on the macroeconomic front, the Japanese economic docket, exports growth decelerate to an 8-month low, as demand for Autos slowed down, as global supply constraints hit Japanese manufacturers. According to sources cited by Reuters, “while carmakers are planning ‘revenge production’ in November and December, clouds still loom - semiconductor shortages will last until year-end at least, and no one knows if carmakers’ plans to avert the impact of chip shortages by adjusting their supply chains would succeed.”

In the US economic docket, housing data came mixed, although it seems to be ignored by investors. Building Permits for October rose to 1.65M, higher than the 1.638M expected by analysts. Contrarily, Housing Starts for the same period slowed their pace to 1.52M, lower than the 1.576M foreseen.

Therefore, the USD/JPY leans in the dynamics of the US bond yields, which act as a tailwind for the pair. If the 10-year benchmark note, remains unchanged, that could be positive for Japanese yen bulls, pushing the pair down. However, USD bulls seem to be pausing before launching an attack towards the 115.00 figure.