USD/JPY defends 114.00 as yields dwindle, chatters over Japan budget, bond issue spread

• USD/JPY picks up bids to reverse the previous day’s pullback from monthly high.
• US T-bond yields struggle to keep first daily loss in three, S&P 500 Futures fail to track Wall Street gains.
• Japan eyes $943 billion budget, 40-year bond issue despite targeting an overall reduction in JGB offers.
• Vaccine optimism fades with news from China, White House, US stimulus hopes prevail.

USD/JPY refreshes intraday top near 114.20 amid the initial hour of Thursday’s Tokyo open.

The yen pair failed to cheer risk-on mood the previous day amid the broad US dollar weakness. That said, the latest run-up could be linked to the market’s recheck of the previous sentiment-positive catalysts that test risk appetite ahead of the key US data. It’s worth noting that updates from Japan, mainly relating to the budget and bond issuance, have also been favoring the USD/JPY prices of late.

“Japan's government is set to unveil on Friday its largest-ever annual budget with $943 billion in spending for the fiscal year beginning in next April, further straining the industrial world's heaviest debt,” said Reuters while spotting a draft seen. On the same line were news stating, “Japan plans to issue 4.2 trillion yen ($37 billion) of 40-year government bonds in the new fiscal year, a 17% increase that comes even as the government plans to cut its bond issuance overall.”

Elsewhere, the White House fears over the availability of Pfizer’s pill to battle the Omicron that recently got the US Food and Drug Administration (FDA) approval challenge the earlier risk-on mood and probes US Treasury bond buyers, underpinning the USD/JPY upside. It’s worth noting that China’s biggest-ever lockdown, of around 13 million residents in Xi’an as stated by the Wall Street Journal (WSJ), also probes the previous decline of the US Treasury yields.

However, hopes of the US stimulus and firmer data challenge the pair buyers. White House spokeswoman Jen Psaki said, per Reuters, “We believe that Senator Manchin has been engaging with us over the course of time and months in good faith." On the other hand, US Q3 GDP rose past the 2.1% forecast to 2.3% whereas the CB Consumer Confidence for December came in better than upwardly revised 111.9 prior to 115.8.

Amid these plays, the S&P 500 Futures struggle to copy the Wall Street’s gains while the US 10-year Treasury yields seesaw around 1.457% after declining for the first time in three days on Wednesday.

Looking forward, USD/JPY traders may pay attention to  the US PCE inflation and Durable Goods Orders for November but the key for fresh impulse will be risk catalysts.

Technical analysis

Wednesday’s Doji candlestick hints at a pullback towards the 50-DMA level surrounding 113.85. Even so, USD/JPY bulls remain hopeful until the quote stays beyond a three-week-old ascending support line, near 113.35.