USD/JPY tracks yields to snap two-day uptrend around 113.50

• USD/JPY steps back from weekly top, refreshes intraday low.
• US Treasury yields drop, stock futures dwindle as geopolitical headlines weigh on previous optimism.
• Japan Q3 GDP came in softer, Tankan Survey portrays optimism for December.
• Qualitative catalysts will be important for clear direction amid a lack of major data/events.

USD/JPY stays pressured around the daily bottom of 113.35 as markets in Tokyo open for Wednesday. In doing so, the yen pair declines for the first time in two days, down 0.05% of late, as fresh challenges to the sentiment weigh on US bond coupons.

Among the key-risk catalysts are the geopolitical tensions between the Washington and Kremlin, as well as the US-China tussles. Adding to the sour sentiment could be the chatters surrounding the fears of Chinese real-estate companies’ default.

US President Joe Biden warns Russia of sanctions and helps Ukraine with military power if Kremlin invades Kyiv. “The Biden administration is in ‘intensive consultations’ with the new German government over its response if Russia invades Ukraine and believes Germany would be ready to take significant action if Russia launches an attack, a senior U.S. State Department official said on Tuesday,” said Reuters.

Further, the US boycott of the 2022 Beijing Olympics doesn’t bode well with China as the dragon nation hints at consequences due to the same. Additionally, the market’s optimism also fades amid doubts over China’s struggling real-estate firms’, Evergrande and Kaisa, capacity to pay the looming debt after barely paying the interests.

It’s worth noting that Japan’s optimism for more stimulus and receding fears of the South African coronavirus variant, dubbed as Omicron keeps USD/JPY buyers hopeful. On the same line is China’s readiness for safeguarding the financial system from default and covid risks.

Talking about data, Japan’s Q3 GDP dropped below -0.8% initial forecast to -0.9% while Tankan Manufacturers’ survey for December was quite optimistic, citing manufacturers’ gauge refreshing four-month high.

While portraying the market mood, the US 10-year Treasury yields snap two-day uptrend around 1.47%, down two basis points (bp), whereas S&P 500 Futures struggle to follow its Wall Street benchmark that rallied the most since March.

Given the lack of interesting data/events on the calendar, risk-related headlines are important for the USD/JPY traders to watch for fresh impulse.

Technical analysis

Tuesday’s Doji below 20-DMA level of 113.95 directs USD/JPY towards the previous resistance line from March, around 112.60 at the latest.