USD/JPY bears smash 115.00 as yields extend pullback

• USD/JPY extends the previous day’s U-turn from multi-month top.
• Yields remain on the back foot after reversing from monthly high.
• Japanese PM Kishida eyes 3% wage hike, Tokyo inflation data came in mixed for November.
• US open, risk catalysts will be in the driver’s seat.

USD/JPY remains on the back foot for the second consecutive day after rising to the highest levels since January 2017. That said, the yen pair takes offers around 114.90 to refresh the intraday low during the initial hour of Tokyo open on Friday.

The quote’s latest weakness could be linked to the US Treasury yields that re-start trading, after the Thanksgiving Day holiday, with the same bearish bias portrayed on Wednesday. The benchmark 10-year Treasury yields drop 5.5 basis points to 1.589% by the press time.

The fresh coronavirus woes, mainly emanating from the Eurozone, join the fears of the Fed rate hike to weigh on the market sentiment of late. While Poland, Germany and France struggle to defend their “no national lockdown” concerns, chatters of a faster spreading virus variant add to the risk-off mood.

Elsewhere, the latest FOMC Minutes and the Fedspeak have been hawkish enough to keep the rate hike concerns alive. On the same line was the 30-year high print of the Fed’s preferred inflation gauge, namely Core PCE Price Index for October.

At home, Japan’s Tokyo Consumer Price Index (CPI) data for November jumped to 0.5% versus 0.1% prior on a YoY basis while the CPI ex Fresh Food eased from 0.4% market forecast to 0.3%, compared to 0.1% prior. Further, the CPI ex Food, Energy matched -0.3% expectations on the yearly basis.

Other than the mixed inflation data, chatters that Japanese PM Fumio Kishida is up for pushing a 3.0% wage hike this spring, per Kyodo News, adds strength to the Japanese yen (JPY).

Amid these plays, Japan’s Nikkei drops 1.5% and the S&P 500 Futures mark 0.35% intraday loss at the latest.

Moving on, a lack of major data/events may challenge the USD/JPY traders but further consolidation of the weekly gains can’t be ruled out amid the sour sentiment.

Technical analysis

The resistance-turned-support line from October 20 restricts immediate USD/JPY declines around the 115.00 threshold, a break of which will need validation from 114.50-45 area comprising multiple levels marked in the last six weeks to recall the bears. Alternatively, the recent high near 115.50 and late January 2017 peak of 115.62 can test short-term buyers.