USD/JPY hovers around 114.00 after BOJ Minutes as yields retreat

• USD/JPY consolidates the biggest daily gains in 12 days, recently off intraday low.
• BOJ Minutes unveiled conversation on impacts of weak yen on Japanese economy, a few members backed ultra-easy policies.
• Market sentiment dwindles ahead of the key US data-set for the week.
• Yields struggle to extend two-day rebound, US stock futures print mild losses.

USD/JPY pares intraday losses while bouncing off the daily low to keep the 114.00 threshold on the chart during early Wednesday. In doing so, the yen pair portrays the buyer’s indecision following the heaviest daily gains in over two weeks.

The pullback moves could also be linked to the retreat in the US 10-year Treasury yields and stock futures, as well as mixed updates from the Bank of Japan (BOJ) Minutes.

While discussing the impacts of the weaker yen on the economy, a few of the BOJ policymakers backed ultra-easy measures citing the inflation’s multiple failures to reach the 2.0% target. “A few members said weak yen exerting positive effects on Japan's economy as a whole even though effects of pushing up exports are lower than before,” adds the BOJ Minutes.

Read: BoJ Minutes: Members discussed the impact of the weak yen on economy

Elsewhere, markets seem to prepare for a slew of US data amid recently recovering inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. Also challenging the risk appetite is the ongoing spread of the South African covid variant, dubbed as the Omicron.

It’s worth noting that the push for Japan to spend more and cut taxes could also be considered challenging the USD/JPY traders. “Japan should offer tax breaks in the next fiscal year and spur 10 trillion yen ($88 billion) in investment over the next decade to revive domestic chipmaking, according to the top adviser on a government semiconductor panel,” Bloomberg said.

That said, market sentiment improved the previous day as the key policymakers rejected major lockdown measures ahead of the Christmas holidays, despite the latest spread of the South African covid variant, dubbed as the Omicron, which seemed to have favored the sentiment. Also positive for gold were US President Joe Biden’s expectations of getting the “Build Back Better (BBB)” plan done as well as vaccine/treatment optimism.

Amid these plays, the US Treasury yields dropped three basis points (bps) whereas the S&P 500 Futures decline 0.8% by the press time. Further, Japan’s Nikkei 225 rises 0.30% on a day at the latest.

Moving on, US data US Q3 GDP, Core Personal Consumption Expenditures for the third quarter and Chicago Fed National Activity Index will precede Existing Home Sales to direct short-term USD/JPY moves. Above all, the US CB Consumer Confidence for December will be important.

Read: Conference Board Consumer Confidence December Preview: Where do Americans turn for optimism?

Technical analysis

A three-week-old rising wedge bearish chart pattern restricts short-term USD/JPY moves between 114.40 and 113.30 amid downbeat oscillators.