USD/JPY hovers around 115.00 amid firmer yields, coronavirus concerns

• USD/JPY struggles to keep the previous day’s upside momentum around five-week high.
• US Treasury yields rally on disappointing seven-year auction, hopes of Fed rate hike.
• Omicron fears escalate but policymakers may not disturb year-end celebrations.
• US Jobless Claims, Chicago PMI to decorate calendar, risk catalysts are the key.

USD/JPY takes rounds to 115.00 during the initial hours of Tokyo open on Thursday.

The yen pair refreshed a multi-day high the previous day, in contrast to the broad US dollar weakness, amid former yields and the market’s rejection to the South African covid variant, namely Omicron.

US 10-year Treasury yields jumped the most in three weeks to refresh monthly high around 1.557%, up 7.6 basis points (bps) by the end of Wednesday’s North American session. The benchmark bond coupon remains firmer around 1.55% by the press time.

While tracing the jump in the Treasury yields, increasing odds of the Fed’s early rate hike in 2022 and the weak seven-year bond auction could be cited as the key catalysts.

“The seven-year notes sold at a high yield of 1.48%, around two basis points higher than where they had traded before the auction,” said Reuters. On the other hand, a jump in the US inflation expectations, as portrayed by 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) back the Fed rate-hike woes. The inflation gauge refreshed the monthly top to 2.53% at the latest.

Talking about the virus, daily covid cases kept rising but the hopes that the speedily spreading South African virus variant, namely Omicron, is less severe, keep market players at peace during the year-end holiday season. “Almost 900,000 cases were detected on average each day around the world between Dec. 22 and 28, with myriad countries posting new all-time highs in the previous 24 hours, including the United States, Australia, many in Europe and Bolivia,” said Reuters. It’s worth observing that Japan reported two-month high of 502 cases on Wednesday.

Despite the surging COVID-19 numbers, policymakers are likely to take clues from the global studies terming Omicron as less severe than the previous variant.

On the calendar, the US Pending Home Sales for November dropped below the forecast of +0.5% to -2.2% MoM whereas Good Trade Balance hit a record deficit of $-97.8B versus $-83.2B prior.

Amid these plays, S&P 500 Futures print mild losses while Japan’s Nikkei 225 drops 0.67% at the latest.

Looking forward, the risk catalysts and yields could keep the USD/JPY buyers hopeful even as the year-end sluggish sessions may restrict the pair’s moves. That said, the US Weekly Jobless Claims and Chicago Purchasing Managers’ Index for December, expected 205K and 62 versus 205K and 61.8 respectively, will decorate the calendar.

Technical analysis

October’s high around 114.70 restricts the short-term downside of the USD/JPY prices while 115.25 and the yearly top marked in November, around 115.50, lure the bulls.