USD/JPY bounces off intraday low amid BOJ’s action mode, softer yields despite Coronavirus, Ukraine fears

• USD/JPY picks up bids pares the first daily loss in six.
• US 10-year Treasury yields refresh intraday low, extend pullback from six-week high.
• China CDC official warns of more Covid spread, explosions heard in Kyiv, Kharkiv.
• BOJ undertook two back-to-back unplanned bond purchases in a single day.

USD/JPY consolidates the intraday losses around 133.85 during the early hours of the European session on Thursday.

In doing so, the Yen pair justifies the recent rebound in the US Dollar, mainly due to the risk-negative headlines surrounding China and Ukraine. However, downbeat US Treasury yields and the Bank of Japan’s (BOJ) active performance in the last few days seem to probe the buyers.

Earlier in the day, the Bank of Japan (BoJ) announced unplanned bond purchase operations twice in a single day.

That said, US Dollar Index (DXY) rises to 104.40 while reversing the early Asian session losses and printing the three-day winning streak despite softer US Treasury bond yields. The benchmark US 10-year Treasury yields refresh intraday low near 3.85%, down 3.0 basis points (bps), by the press time.

The US Dollar’s latest run-up could be linked to the comments from a top official from the Chinese Center for Disease Control and Prevention (CDC) as he warned of Covid spreading throughout the holiday season. The diplomat, however, also mentioned that the Coronavirus outbreaks have peaked in Beijing, Tianjin and Chengdu. Previously, around seven major nations have recently announced Covid test requirements for Chinese travelers as the virus cases swirl in the dragon nation but Beijing reverses the “Zero-Covid” policy.

Talking about geopolitics, Russia’s rejection of peace with Ukraine unless it accepts the treaty allowing additional territories, as well as an escalated war in the city of Kherson, weighs on the market sentiment. Recently, explosions were heard in Kyiv and Kharkiv after a Ukrainian diplomat warned of a missile launch.

Against this backdrop, S&P 500 Futures print mild gains but equities in Europe and London stay depressed by the press time.

Looking forward, risk aversion could renew USD/JPY buying but a jump in the US Initial Jobless Claims could weigh on the prices amid a likely sluggish session.

Technical analysis

A convergence of the 200-HMA and the support-turned-resistance line stretched from December 20, around 133.95, quickly followed by the 134.00 round figure, guards the USD/JPY pair’s immediate upside.