USD/JPY grinds higher past 115.00 as bulls track yields at 44-month top

• USD/JPY seesaws around highest levels since March 2017 after two-day uptrend.
• Treasury yields ease from monthly top, Asia-Pacific stocks trade mixed.
• Japan PMI tracks US counterparts with softer-than-expected figures for November, Tokyo announces measures to help chipmakers.
• US data/events will be the key, stimulus headlines and covid news important too.

USD/JPY bulls take a breather around 115.10, following an uptick to refresh the multi-month top during early Wednesday. In doing so, the yen pair struggles to extend the two-day advances amid a pullback in the US Treasury yields.

US 10-year Treasury yields step back from the highest levels since October 22, down 0.8 basis points (bps) around 1.65% at the latest, amid a lack of major data/events. The yields jumped to the monthly peak the previous day before the mixed US data paused bond bears.

US Markit PMIs flashed mixed numbers for November as the Manufacturing activity gauge rose past expectations and prior but not the Services index, which in turn weighed on the Composite figures. Additionally, US Richmond Fed Manufacturing Index crossed the expected figure of 5 but stayed below 12 previous readouts to 11 for November.

At home, Japan’s Preliminary Jibun Bank Manufacturing PMI for November crossed 53.2 previous reading but stayed below 54.5 market forecasts to print 54.2 figures.

It’s worth noting that the geopolitical fears and latest covid woes seem to probe the USD/JPY buyers of late. Japan’s geopolitical tensions with China escalate on matters relating to Vietnam as the Asian major opposes Beijing’s power-play in the troubled waters. “The defense ministers of Japan and Vietnam agreed Tuesday to "strongly oppose" unilateral attempts to change the status quo in regional waters, in a veiled reference to China's maritime expansion,” said Kyodo News.

Netherlands witnesses a COVID-19 crisis and has recently announced local lockdowns but the conditions aren’t improving, which in turn favor the JPY’s safe-haven demand, especially amid a pullback in the yields. “The Netherlands started transporting COVID-19 patients across the border to Germany on Tuesday to ease pressure on Dutch hospitals, which are scaling back regular care to deal with a surge in coronavirus cases,” said Reuters.

Also positive for the JPY could be the improvement in coronavirus conditions at home and the government’s readiness to help the nation overcome the pandemic-led economic hardships. Recently, Nikkei reported that  Japan will allocate about 600 billion yen ($5.2 billion) from its fiscal 2021 supplementary budget to support advanced semiconductor manufacturers including the world's No. 1 contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC), per Reuters.

Against this backdrop, US stock futures struggle to keep the bounce off a two-week low while shares in Asia-Pacific trade mixed with Japan’s Nikkei 225 down 0.80% by the press time.

Given the consolidation in the yields, coupled with the cautious mood ahead of the key US data/events, USD/JPY may witness further pullback. Among the US catalysts, the latest FOMC Meeting Minutes and October core PCE inflation are crucial considering the increased expectations of the Fed rate hike.

Technical analysis

With the nearly overbought RSI conditions, USD/JPY buyers may struggle on their way to the March 2017 peak of 115.50. However, an ascending trend line from October 20 near 114.85 restricts the immediate downside.