USD/JPY snaps two-day uptrend around 114.50 despite firmer yields, BOJ eyed

• USD/JPY takes offers to refresh intraday low, consolidate the biggest daily jump in two weeks.
• US Treasury yields refresh multi-day top as bond trading resumes after MLK Day off.
• Japan weighs covid-linked quasi emergency over Tokyo and 10 other prefectures.
• BOJ is likely to keep monetary policy intact, quarterly report on price and growth outlook will be important.

USD/JPY stands on the slippery ground near 113.45, down 0.14% intraday, as Tokyo opens for Tuesday’s trading.

The yen pair rose the most in two weeks the previous day as a bank holiday in the US restricted bond and equities’ moves. However, the resumption of the Treasury bond trading portrayed a strong start to the week and weighed on the quote.

The US 10-year and 5-year Treasury yields rose to the highest in two years while 2-year coupon jump to the February 2020 levels during the week-start move. "Hawkish Fed speak ahead of the blackout has reinforced odds of a March hike, with the market now pricing in 95% odds of a March rate hike and nearly four full hikes in 2022," analysts at TD Securities wrote.

Among the latest Fed hawks were Federal Reserve Bank of San Francisco President Mary Daly and New York Fed President John Williams on Friday. While portraying the hawkish Fed scenario ahead of next week’s Federal Open Market Committee (FOMC) meeting, the yields pay a little heed to the softer prints of the US Retail Sales for December and Michigan Consumer Sentiment Index for January.

It’s worth noting that the mixed concerns over the South African covid variant, namely Omicron, also increase the market’s fear and weigh on the USD/JPY prices. Japan witnesses a jump in the daily infections and braces for tougher covid-linked restrictions. “Japan is considering placing Tokyo and 10 prefectures under a COVID-19 quasi-state of emergency to curb rapidly spreading coronavirus cases, government sources said Monday,” per Kyodo news. Elsewhere, covid cases in the US and the UK recede.

Moving on, USD/JPY traders will pay attention to the Bank of Japan (BOJ) monetary policy meeting even as the policymakers are likely to keep the benchmark policy rate steady at -10bps while maintaining its pledge to buy J-REITS at an annual pace of up to JPY180 bln. The important part is the chatters over the quarterly prices and growth outlook amid virus-led reflation fears.

Ahead of the BOJ, FXStreet’s Dhwani Mehta said, “The reaction to the BOJ decision is likely to remain brief, as the prevalent risk tone combined with the yields and the dollar valuations will likely remain the main drivers for the currency pair.”

Read: BOJ Preview: Raising its view on inflation, finally!

Technical analysis

Failures to cross October 2021 peak and previous support line from late September, surrounding 114.70, join the bearish MACD signals to direct USD/JPY prices towards the latest swing low near 113.50.