USD/JPY stays firmer above 116.00 on strong yields

• USD/JPY picks up bids to refresh daily top, on the way to five-week high.
• Hot US inflation figures propelled yields to fresh 2.5 years’ high, Fedspeak also contributes to the move.
• Fed’s Bullard, Barkin keep buyers hopeful, markets place heavy bets on 0.50% rate hike in March.
• Geopolitical, trade risks join Japan’s covid struggle to portray risk-off mood, US Michigan Consumer Sentiment eyed.

USD/JPY remains on the front foot around a five-week high, up 0.08% intraday near 116.15 amid the mid-Asian session. In doing the risk barometer pair extend the previous day’s moves amid an off in Japan.

The yen pair jumped to the highest since early January the previous day following the US Treasury yields’ rally post-inflation data. The up-moves also gained support from the hawkish Fed commentary and geopolitical/trade fears that weighed on the US bonds. Additionally, escalating covid woes in Japan add to the yen’s weakness and so do the Bank of Japan’s (BOJ) refrain from leaving easy money policies.

On Thursday, the US Consumer Price Index (CPI) for January rallied to a nearly five-decade high with a 7.5% YoY figure, versus 7.3% expected and 7.0% prior.

Although the hot inflation figures were already expected, St. Louis Fed President James Bullard went a step farther while supporting 100 bps rate hikes by July and for the balance sheet reduction to start in the second quarter. Fed’s Bullard also cited the potential for 50 basis points (bps) of Fed rate hike in March.

Following that, Federal Reserve Bank of Richmond President Thomas Barkin said that the US economy will likely return past the pre-covid trend this quarter. Though, Fed’s Barkin wasn’t as hawkish as Bullard.

Elsewhere, US President Joe Biden confirmed the recent notice from the US Statement Department to all citizens to leave Ukraine right now during an interview with NBC News. Further, US-China trade tussles are also on the spike as Washington discusses sanctions for Beijing due to the Dragon nation’s failure to meet Phase 1 deal targets.

At home, Japan’s government officially announced a three-week extension to the quasi-emergency for Tokyo and 12 other prefectures the previous day. This may be the case that seems to push the Bank of Japan (BOJ) policymakers to refrain from the hawkish messages and keep easy money on the table.

Amid these plays, the US 10-year Treasury yields remain firmer around the highest levels since July 2019, up one basis point at 2.035% by the press time. However, the S&P 500 Future drop 0.50% at the latest.

Technical analysis

A clear upside break of the 116.35 level, comprising the multi-month high marked in January, becomes necessary for the USD/JPY buyers to aim for the 117.00. Following that, an upward sloping trend line from November, close to 117.15, will challenge the upside momentum.

It’s worth noting that the nearly overbought RSI conditions on the daily chart challenge the USD/JPY pair’s further upside.