USD/JPY advances above 114.00 on firmer Treasury yields, risk-on mood

• USD/JPY extends Friday’s rebound from a two-week low.
• Japan’s Kishida wins snap elections, LDP keeps majority power.
• US stimulus hopes join Fed tapering concerns to underpin US Treasury yields, equities.
• US ISM Manufacturing PMI, inflation chatters can entertain traders.

USD/JPY remains on the front foot above 114.00, recently easing from an intraday top of 114.25, amid the initial Tokyo trading hour on Monday. In doing so, the yen pair rises for the second consecutive day with 0.30% intraday gains at the latest.

In addition to Monday’s headlines suggesting Prime Minister Fumio Kishida’s victory in snap elections, firmer US Treasury yields and a mildly positive risk appetite also underpin the USD/JPY advances of late.

''While Kishida's conservative Liberal Democratic Party (LDP) was projected to emerge with fewer seats in the powerful lower house than it won in the last election in 2017, the party retained its majority, exit polls by public broadcaster NHK showed early on Monday,'' Reuters reported. The same should call for more stimulus and rejection to a sales tax hike as Japan’s PM Kishida hinted earlier, which in turn can add to the positive mood and weigh on the Japanese yen’s safe-haven demand.

Alternatively, Steady prints of the Fed’s preferred inflation gauge joined optimism concerning the US stimulus to propel the US Dollar Index (DXY) the most since mid-June on Friday, fueling the USD/JPY prices in turn. That said, the US Core PCE Inflation data remained firmer around 3.6%, versus a 3.7% market forecast, for September. The same bolstered traders’ fears over the US inflation and Fed tapering chatters, as could also be sensed in the latest speech from Fed Chairman Jerome Powell, on October 22, where he dumped ‘transitory’ concern for inflation. Amid these plays, the US 10-year Treasury yields rose two basis points (bps) to 1.575% by the press time.

It should be noted that the recently escalating US-China tussles and the Bank of Japan’s (BOJ) comparatively weaker stand against the US Federal Reserve (Fed), as far as monetary policy tightening is concerned, also underpin the US Treasury yields and the US dollar.

Looking forward, US ISM Manufacturing PMI, expected 60.4 versus 61.1, may entertain USD/JPY traders ahead of Wednesday’s Fed decision. Although an absence of Fed Chair Powell’s press conference and economic forecast may dim the charm of the key event, hawkish expectations keep the day on the USD/JPY buyer’s radar.

Technical analysis

USD/JPY keeps Friday’s short-term falling wedge breakout to direct the bulls toward the yearly top around 114.70, also the three-year peak, until the quote stays beyond 113.95.