USD/JPY stays pressured towards 115.00 on softer yields, sour sentiment

• USD/JPY extends the previous day’s losses, remains depressed around intraday low.
• Anxiety over Russia-Ukraine issue, Fed’s next move weighs on risk appetite.
• Yields drop after a lackluster performance, stock futures and Nikki 225 also decline.
• Japan’s trade deficit rose to largest since January 2014, second-tier US will decorate calendar.

USD/JPY takes offers to refresh intraday low near 115.30 amid fragile risk profile as Tokyo opens for Thursday.

The yen pair dropped the previous day as the market’s indecision over the US Federal Reserve’s (Fed) next move, as well as lack of clarity on the de-escalation of the Russia-Ukraine tensions. It’s worth noting that the latest Japan trade numbers failed to weigh on the JPY due to its safe-haven appeal.

That said, Japan’s Merchandise Trade Balance Total dropped to the eight-year low in January 2022 to ¥-2191.1B versus ¥-1607B expected and ¥-583.3B prior. Also important to note was the fact highlighted by Reuters that Japan January shipments to China post y/y drop for the first time in 19 months.

It’s worth noting that yields on 20-year Japanese Govt Bond (JGB) rose to a new high since February 2017, at 0.72% by the press time, whereas the US 10-year Treasury yields also dropped 2.3 basis points (bps) to 2.024% at the latest. Also portraying the risk-off mood are the downbeat prints of Japan’s Nikkei 225 index and S&P 500 Futures, down 0.45% and 0.25% at the latest.

The main catalyst behind the moves are headlines from Russia as recently softer comments from Moscow fail to convince the West and some of the Ukrainian sources as they reject the Russian troops’ retreat. On the other hand, the latest update suggests that Russia moves more military battalions towards the area near Ukraine and has also built a road and working on a bridge to soften the transport.

On the other hand, the Federal Open Market Committee (FOMC) Minutes also showed the hawkish concerns among the board members even if marking no strong support for a 0.50% rate hike in March.

That said, US Retail Sales and Industrial Production rose notably beyond the market forecasts and previous readouts with the latest MoM figures of 3.8% and 1.4% respectively in January.

Looking forward, risk catalysts are the key to keeping USD/JPY bears hopeful while the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, may entertain traders.

Technical analysis

Unless breaking a three-week-old ascending support line, currently around 115.20, USD/JPY bears remain challenged. On the contrary, the double tops surrounding 116.30-35 become the key hurdle for the yen pair buyers to watch during the recovery moves.