USD/JPY seesaws near five-year top past 116.00 as yields dwindle ahead of US ADP, FOMC Minutes

• USD/JPY struggles to extend the biggest daily jump in six week, edges higher around January 2017 levels.
• Market sentiment turns cautious ahead of the key US data/events.
• Mixed concerns over Omicron, another covid variant also challenge optimists.
• Japan Monetary Base eased in December, early signal of Friday’s US jobs report, Fed policymaker’s view eyed for fresh impulse.

USD/JPY grinds higher around 116.15 after refreshing the multi-day high with the heaviest daily jump in six weeks. With this, the risk barometer pair stays defensive around the five-year top as Tokyo opens for Wednesday.

Japanese traders witnessed a warm welcome as they began 2022 the previous day. The reason could be linked to the market’s receding fears of the South African covid variant, Omicron, as well as easing odds of a faster rate hike by the US Federal Reserve (Fed) than initially feared.

Even so, cautious sentiment ahead of the US ADP Employment Change for December and Federal Open Market Committee (FOMC) Meeting Minutes seems to restrict the yen pair’s latest upside during the three-day run-up.

Also challenging the USD/JPY buyers could be the softer-than-expected figures of Japan’s Monetary Base for December, 8.3% versus 8.6% forecast and 9.3% prior. The US economics also eased during the latest releases as the ISM Manufacturing PMI dropped to the lowest in 11 months in December, 58.7 versus 60.0 forecast and 61.1 prior whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M.

Furthermore, recent news that North Korea fired a ballistic missile, per Japan Coast Guard, also challenged the USD/JPY upside.

On Tuesday, the US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) eased from a six-week high to 2.57% at the latest, which in turn tamed Fed rate-hike chatters and helped USD/JPY to rally. On the same line were comments from the Bank of Japan (BOJ) Governor Haruhiko Kuroda and Japanese Prime Minister (PM) Fumio Kishida signaling further easy money.

It should be observed that comments from Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari, who said on Monday that he now sees two rate hikes in 2022, versus the money market bets of three rate lifts also favored USD/JPY bulls the previous day.

Amid these plays, Wall Street benchmarks closed mixed and the US 10-year Treasury yields refreshed six-week top before recently easing to 1.653%, down 1.3 basis points (bps). Further, Japan’s Nikkei prints mild decline following the heavy run-up the previous day whereas S&P 500 Futures print 0.15% intraday loss at the latest.

Looking forward, markets may remain cautious and hence the USD/JPY bulls can take a long breather until the ADP report cross downbeat market forecasts and Federal Open Market Committee (FOMC) Meeting Minutes convey hawkish bias of the Fed policymakers.

Read: US ADP December Preview: Suddenly its inflation, not jobs

Technical analysis

An ascending resistance line from October 20, near 116.50 by the press time, lures USD/JPY buyers until the quote drops below the 13-day-old support line near 115.20.