USD/JPY struggles to regain 115.00 on sluggish yields amid coronavirus fears

• USD/JPY picks up bids to consolidate previous day’s losses from monthly high.
• Markets remain dicey amid year-end inactivity, virus woes, Fed rate-hike fears weigh on sentiment.
• Lack of major data/events restrict short-term moves but risk catalysts can keep buyers hopeful.

USD/JPY pares recent losses around 114.80, near the monthly peak, as Tokyo opens for Wednesday. The yen pair jumped to the highest since November 26 the previous day before reversing the gains from 114.94.

While the risk-off mood underpinned the US Treasury yields and favored USD/JPY bulls earlier on Tuesday, the market’s indecision and a light calendar seem to have triggered the following pullback. Even so, worsening virus conditions and firmer signals of the Fed’s earlier rate-hike in 2022 keep the USD/JPY buyers hopeful.

France reports the world’s highest ever daily covid cases of 179,807 on Tuesday while the UK reports the all-time high daily infections, above 122,000. Elsewhere, “The average number of new COVID-19 cases in the United States has risen 55% to over 205,000 per day over the last seven days,” according to a Reuters tally.

It’s worth noting that Japan Prime Minister Fumio Kishida signals bringing forward the booster shot timeline the previous day to battle the South African covid variant, namely Omicron.

On the different page, the US inflation expectations remain near the monthly high, per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis, which in turn backs an early rate hike from the Fed and weigh on yields, as well as USD/JPY.

That said, optimism over the studies showing the receding odds of hospitalization due to the Omicron, increased hopes of US stimulus and brighter economic performance in 2022 keep the USD/JPY buyers positive. In this regard, Kyodo News cited economic analysis while saying, “The Japanese economy is expected to accelerate its expansion in fiscal 2022 following a sharp turnaround toward the end of 2021 as private consumption continues to recover thanks to subdued coronavirus infections.”

Amid these plays, the US 10-year Treasury yields remain pressured around 1.475% while the two-year benchmark, which jumped to the highest since March 2020, also flirts with a 0.746% level. Further, S&P 500 Futures print mild gains whereas Japan’s Nikkei 225 drops -0.20% at the latest.

Looking forward, the US Pending Home Sales and Goods Trade Balance for November will decorate the calendar while risk catalyst may offer intermediate moves to the USD/JPY traders. However, thin end-of-year liquidity conditions may limit the short-term momentum.

Technical analysis

Unless declining below 114.25, comprising the 10-DMA and the mid-month top, USD/JPY prices are likely to refresh the yearly top marked in November around 115.55. However, the 115.00 and 115.25 levels may act as intermediate stops during the rise.