USD/JPY: Bulls cheer firmer yields, hawkish Fed to approach 115.00, US GDP eyed

• USD/JPY takes the bids to refresh weekly top, jumped the most in 14 days post-Fed.
• US T-bond yields printed heaviest daily jump in three weeks after Fed matched upbeat market expectations.
• Japan reports record daily covid infections, BOJ also accepts Omicron fears.
• Advance readings of US Q4 GDP, Durable Goods Orders will be watched for fresh impulse, risk catalysts are important too.

USD/JPY justifies hawkish Fed showdown while taking the bids near 114.75, up 0.15% intraday to refresh weekly top as Tokyo opens for Thursday.

The yen pair rose the most in three weeks after the US Federal Reserve (Fed) matched hawkish expectations by the market as it flagged interest rate hikes amid inflation woes.

The US Federal Reserve (Fed) kept benchmark interest rates and tapering targets intact during Wednesday’s Federal Open Market Committee (FOMC) meeting. However, the interesting part from the Monetary Policy Statement was, “The Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

Fed Chairman Jerome Powell also spoke in sync with the hawkish signals from the US central bank while saying, “There’s plenty of room to raise rates.” Though, his comments like, “The rate-hike path would depend on incoming data and noted that it is ‘impossible’ to predict,” seemed to have probed the USD/JPY bulls afterward before the latest run-up.

Read: Fed Quick Analysis: Three dovish moves boost stocks, why more could come, why the dollar could rise

It’s worth noting that the US warning to scrap Nordstorm 2 oil pipeline deal with Russia if it invades Ukraine and the record high covid numbers in Japan are likely to act as immediate challenges for the risk appetite and the USD/JPY pair.

“Japan's daily count of new COVID-19 cases hit yet another record of over 70,000 on Wednesday as the more transmissible Omicron variant continues its rapid spread in Tokyo and elsewhere,” said Kyodo News.

Talking about the data, US housing numbers improved in December whereas Japan’s Foreign Bond Investment shrunk to negative and the Foreign Investment in Japan Stocks reversed the previous contraction with ¥10.2B level.

Against this backdrop, US equities and commodities remained on the back foot, except for oil, whereas the US 10-year Treasury yields rose the most in three weeks, up eight basis points (bps) to 1.87% by the end of Wednesday’s North American session. That said, the US T-bond yields stay firmer around 1.87% while the S&P 500 Futures print mild gains by the press time.

Looking forward, risk catalysts like Ukraine-Russia tussles and Sino-American tensions, not to forget virus woes, may play a notable role to direct short-term USD/JPY moves but major attention will be given to the first readings of the US Q4 GDP and Durable Goods Orders for December.

Read: US GDP Preview: Inflation component could steal the show, boost dollar, already buoyed by Russia

Technical analysis

USD/JPY pair’s daily closing beyond a three-week-old resistance line, now support near 114.15, directs the quote towards the mid-month top of 115.06.