USD/JPY defends 113.00 even as yields retreat ahead of US NFP

• USD/JPY picks up bids after snapping two-day downtrend.
• Market sentiment dwindles amid Fed rate hike bets, Omicron concerns and US funding bill news.
• Hawkish Fedspeak couldn’t stop Wall Street from positing gains but Asia-Pacific equities trade mixed of late.
• Japan Jibun Bank Services PMI improved in November, US jobs report in focus.

USD/JPY reverses the day-start losses to regain 113.15, following the first positive day in three, during the early hours of Tokyo open on Friday.

The risk barometer pair tracked from the firmer US Treasury yields the previous day to recover while hopes of finding a solution to the South African covid variant, as well as avoiding the US government shutdown seem to recently favor the buyers. However, cautious sentiment ahead of the US Nonfarm Payrolls (NFP) data for November, expected 550K, tests the USD/JPY upside.

US 10-year Treasury Treasury yields bounced off a 10-week low to regain 1.45% level the previous day, down two basis points (bps) to retest the 1.43% mark at the latest.

Fedspeak pushed for a sooner tapering in the last-ditched efforts before the silent period starting from this Saturday, which in turn propelled the bond yields and the US Dollar Index (DXY). Among the key promoters of faster rolling back of easy money, also conveying reflation fears, were Federal Reserve (Fed) Bank of San Francisco President Mary Daly and Richmond President Thomas Barkin.

Also adding to the DXY strength could be softer-than-expected prints of the US Initial and Continuing Jobless Claims for the week, as well as downbeat Challenger Job Cuts for November. That said, the final reading of Japan’s Jibun Bank Services PMI for November rose past 50.7 prior to 53.00.

Furthermore, optimism concerning Omicron’s cure, spread by the UK, joins the recovery in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, to favor the USD/JPY prices.

On the contrary, fears of a negative surprise from the US jobs report and virus woes join geopolitical tension surrounding Russia, Iran and China to test the market sentiment and the USD/JPY prices.

Amid these plays, the US 10-year Treasury yields struggle to extend the previous day’s rebound while the Asia-Pacific equities and the S&P 500 Futures trade mixed by the press time.

Moving on, the virus updates and the geopolitical chatters could offer intermediate direction to the USD/JPY traders ahead of the US NFP.

Read: US Nonfarm Payrolls November Preview: Can we agree the labor market is healing?

Technical analysis

USD/JPY holds onto the previous resistance line from March, around 112.75 by the press time. However, the 50-DMA level of 113.40 restricts immediate upside.