USD/JPY bulls eye 116.00 on strong yields ahead of US inflation data

• USD/JPY prints three-day uptrend around fortnight top, picks up bids to refresh daily top.
• Market sentiment dwindles amid mixed concerns over inflation, geopolitics and covid.
• WH comments, Fedspeak rang alarms over CPI despite expecting easy figures in the long-term.
• Japan's PPI came in stronger but nothing matters more than the US CPI.

USD/JPY picks up bids to renew intraday high near 115.60 during the three-day uptrend. With this, the yen pair prints 0.07% gains on a day as markets brace for the US Consumer Price Index (CPI) data amid the initial hour of Tokyo open on Thursday.

The pair benefited from the sluggish US dollar and firmer Treasury yields to portray the recent upside momentum. However, upbeat factory-gate inflation at home and cautious mood before crucial inflation data keep the USD/JPY buyers worried of late.

That said, the US Producer Price Index (PPI) for January crossed market forecasts in January with 0.6% MoM and 8.6% YoY figures versus 0.4% and 8.2% expected respectively. The factory-gate inflation hits to the highest since September 1985.

Late on Wednesday, the White House (WH) conveyed expectations of a higher YoY inflation figure while also saying, “Its irrelevant month on month number will continue trending lower the rest of the year.” Following that, WH Economic Adviser Brian Deese said that he sees reason to think that factors boosting inflation will moderate over time.

It should be observed that Cleveland Fed President Loretta Mester supported the March rate hike while Atlanta Federal Reserve President Raphael Bostic told CNBC on Wednesday he is hopeful that they will start to see a decline in inflation. Fed’s Bostic also said, "Leaning toward the need for a fourth interest rate increase in 2022."

On a different page, virus conditions in Japan keep worsening and push the government to extend the latest quasi-emergency. “Japan will decide Thursday to extend by three weeks until March 6 a COVID-19 quasi-state of emergency for Tokyo and 12 prefectures as the nation scrambles to rein in infections caused by the highly contagious Omicron variant,” said Kyodo News.

Amid these plays, the US 10-year Treasury yields pause the previous day’s pullback from the highest levels since July 2019 while the S&P 500 Futures remain indecisive despite Wall Street’s upbeat performance on tech-rally and strong earnings.

Looking forward, USD/JPY may remain on the front foot as bond bears are likely to keep reins heading into the US inflation data. However, any disappointment from the key figures, expected 7.3% YoY versus 7.0% prior, won’t hesitate to weigh on the USD/JPY prices.

Read: US Consumer Price Index January Preview: Is this inflation different?

Technical analysis

A clear upside break of the monthly horizontal resistance bear 115.70 becomes necessary for the USD/JPY prices to remain firmer towards January’s top of 116.35. However, the pair sellers remain away until witnessing a break of a 13-day-old support line near 114.75.