USD/JPY tracks yields to rebound towards 114.00 amid COVID-19 variant woes

• USD/JPY consolidates the heaviest daily loss since March 2020, bounces off 13-day low.
• WHO termed Omnicron as a “variant of concern”, Japan tightens border controls.
• US Treasury yields recover as Fed’s Bostic rejects dovish concerns.
• Japan Retail Sales eased in September, Fed’s Powell, US President Biden eyed for fresh impulse.

USD/JPY licks its wounds around 113.75, up 0.55% intraday, following the heaviest daily fall in 20 months. That said, the yen pair tracks US Treasury yields and stock futures as global markets rethink the virus variant and its ability to roil the global economy after Friday’s harsh reaction.

The benchmark US 10-year Treasury yields add five basis points (bps) to 1.53% whereas the S&P 500 Futures rise 0.80% at the latest. The corrective pullback seems to track comments from the US health officials and those from Israel that keep the traders hopeful of overcoming the coronavirus strain after the fears of ‘Omnicron’ roiled market sentiment the previous day.

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omnicron’ as less severe than the ‘Delta’ version of the coronavirus.

Also favoring the US Treasury yields and the USD/JPY buyers were the weekend comments from Atlanta Federal Reserve President Raphael Bostic, rejecting market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation.”

At home, Japan’s Prime Minister Fumio Kishida announced blocking the border for foreigners arriving from South Africa and eight other nations. It should be noted that Japan’s Retail Trade eased to 0.9%, versus 1.1% market consensus and -0.5% prior, in September.

Looking forward, the virus developments in the West will be particularly more important for the USD/JPY traders, which in turn highlights today’s speech from US President Joe Biden to update on the US reaction to the COVID-19 variant. Additionally, comments from Fed Chairman Jerome Powell will be observed closely for fresh impulse too.

Technical analysis

A daily closing beyond the support-turned-resistance from early October, around 113.75 by the press time, becomes necessary for the USD/JPY buyers to retake controls. On the contrary, bears remain on the sidelines until the quote stays above 50-DMA level around 113.15.