USD/JPY approaches 114.00 as coronavirus propels yields

• USD/JPY stays on the front foot, up for fourth consecutive day.
• Covid vaccine-linked optimism fades on fresh virus-led activity restrictions in Europe.
• Geopolitical tensions, fears of early Fed rate hike add strength to the bullish bias.
• Omicron, China and inflation are the key catalysts to watch for near-term directions.

USD/JPY picks up bids to refresh intraday top around 113.80 as Tokyo opens for Thursday.

The yen pair prints a four-day uptrend as yields stays firmer amid fresh coronavirus fears from the West, challenging the previous optimism that the South African covid variant, dubbed at Omicron, is milder than the previous strains. Also challenging the market sentiment and underpinning the US bond coupons are the chatters over the US-China and Fed rate hikes.

The re-introduction of the virus-led activity restrictions in Germany, France and the UK renews COVID-19 fears in the market even if major vaccine producers cite booster shots as effective to tame Omicron.

On the other hand, Sino-American tussles are likely escalating as US Assistant Secretary of Defense for Indo-Pacific Security Affairs Ely Ratner said, “Bolstering Taiwan's self-defenses is an ‘urgent task’ and an essential feature of deterring China”. Also favoring the risk-off mood are the news suggesting the diplomatic tussles of the Washington-Tehran and the US-Russia.

At home, Japan’s Prime Minister Fumio Kishida battles for the record covid stimulus in the Parliament as Tokyo registered the fourth Omicron case.

In addition to the virus-linked headlines and geopolitical fears, fresh chatters over the Fed’s rate hike, triggered by Reuters’ poll, also weigh on the US bonds and favor the Treasury yields, as well as the USD/JPY prices.

That said, the US 10-year Treasury yields rise 1.4 basis points (bps) to 1.52%, up for the fourth consecutive day, whereas S&P 500 Futures print mild losses at the latest.

Given the recent shift in the market sentiment, the USD/JPY is likely to remain stronger as markets brace for Friday’s US Consumer Price Index (CPI) data.

Technical analysis

A daily close beyond 50-DMA, around 113.55 by the press time, pushes USD/JPY prices toward October’s top near 114.80. However, the 114.00 threshold may offer an intermediate halt during the anticipated rise.