USD/JPY grinds higher around 113.50 as yields rebound amid Omicron fears

• USD/JPY struggles for a clear direction, seesaws around intraday high.
• Yields rebound, S&P 500 Futures print mild gains as stimulus hope stay on the table.
• Japan braces for FY 2022 GDP’s upward revision, Omicron woes escalate.
• Risk catalysts are the key for fresh impulse, year-end sluggish moves to prevail.

USD/JPY treads water around 113.65 after posting a bullish candlestick formation the previous day. The yen pair struggles to justify upbeat catalysts at home and firmer US Treasury yields amid a lack of major data/events, not to forget the risk-off mood.

Japanese policymakers are up for revising the Financial Year (FY) 2022 GDP forecast hoping for relief from a multi-billion dollar worth of budget. Reuters quote Yomuri while saying, “Japan is considering raising its forecast for fiscal 2022 real gross domestic product (GDP) growth to 3.0% or more after taking into account the impact of a record $317 billion extra budget.” The news adds, “The projection would be an upgrade from a forecast for 2.2% real GDP growth for the fiscal year starting in April 2022 released at a mid-year review in July.”

Elsewhere, the World Health Organization (WHO), the US Centers for Disease Control and Prevention (CDC) and the Imperial College of London highlighted fears of the South African covid variant, dubbed as Omicron. WHO said, per Reuters, “The Omicron variant of the coronavirus is spreading faster than the Delta variant and is causing infections in people already vaccinated or who have recovered from the COVID-19 disease.”

The US CDC and the UK Scientists were also fearful of the virus variant. The former said, “Omicron is now the most common coronavirus variant in the US, accounting for nearly three-quarters of COVID-19 cases,” while the latter mentioned, per Reuters, “Infections caused by the Omicron variant of the coronavirus do not appear to be less severe than infections from Delta.”

On a different page, US President Joe Biden and House Speaker Nancy Pelosi tried placating traders after Senator Joe Manchin’s rejection to vote in favor of the Build Back Better (BBB) plan sparked worries. Furthermore, escalation in the US-China tussles is an extra burden on the market sentiment. "If there is confrontation, then (China) will not fear it, and will fight to the finish," said China’s Foreign Minister Wang Yi on Monday. The policymaker adds, "There is no harm in competition but it should be ‘positive’”. On the same line were fears of the Fed rate-hike, backed by Fed Board of Governors member Christopher Waller.

Against this backdrop, the US Treasury yields posted 2.3 basis points (bps) of an upside to 1.42% after declining to the monthly lows. Further, the Wall Street benchmarks also posted losses but the S&P 500 Future rise 0.40% intraday by the press time.

Given the lack of major data/events, any developments on the risk catalysts, mentioned above, will be crucial for the near-term direction.

Technical analysis

Monday’s Dragonfly Doji candlestick formation keeps USD/JPY buyers hopeful of providing a clear upside break of 50-DMA, near 113.85 by the press time.