USD/JPY bears keep the reins near 132.50 as yields remain pressured, focus on BOJ action, Covid

• USD/JPY extends the previous day’s pullback from weekly top, renews intraday low of late.
• US Treasury bond yields remain depressed after reversing from six-week top.
• Market sentiment dwindles amid year-end inaction but headlines surrounding China, Russia and mixed US data probe optimists.
• BOJ will also be in focus after its two consecutive market moves in a single day.

USD/JPY bears stay in the driver’s seat as the Yen pair renews intraday low around 132.50 during the initial hours of Tokyo opening on Friday. That said, the quote posted the biggest daily loss since December while reversing from a one-week high the previous day.

The quote’s weakness could be linked to the downside of US Treasury bond yields, as well as the mixed sentiment and the US data, not to forget the year-end inaction.

It should be noted that the US 10-year Treasury yields remain pressured around 3.825% while snapping a five-day uptrend the previous day, not to forget marking a U-turn from the six-week high. The pullback in the key US bond coupons weighed on the US Dollar Index (DXY) amid mixed data and headlines surrounding China and Russia.

Talking about the data, US Initial Jobless Claims rose 225K versus 216K prior for the week ended on December 24 while the Continuing Jobless Claims increased by 1.71M from 1.669M previous readout during the week ended on December 16. However, the 4-week moving average for the same dropped to 221K versus the revised down previous readings of 221.25K.

Further, around seven major nations, including the US and the UK have recently announced Covid test requirements for Chinese travelers as the virus cases swirl in the dragon nation but Beijing reverses the “Zero-Covid” policy. Additionally, China’s Center for Disease Control and Prevention (CDC) top epidemiologist Wu Zunyou warned that Covid is seen spreading throughout the holiday season.

On the positive side, Italy’s rejection of fears of any new Covid variant, after finding 50% of flight passengers being infected by the virus, seemed to have helped the markets in ignoring the fears of the virus.  On the same line could be the headlines suggesting China’s discovery of a Covid antiviral pill and hopes of the CDC board to overcome the COVID-19 fears by citing the peak of virus spread in Beijing, Tianjin and Chengdu. Also, an absence of heavy losses to lives and infrastructures during Thursday’s heavy missile fire on Kyiv and Kharkiv by Moscow joined the global backup to Ukraine in suggesting a sooner end to the thorny issue and probed the pessimism.

At home, the Bank of Japan’s (BOJ) two consecutive bond purchase actions in a single day raised hopes of more defense to the yield curve and hence further strength of the Yen (JPY).

Amid these plays, Wall Street closed positive but stocks in the Asia-Pacific nation printed mild losses of late.

Moving on, the US Chicago Purchasing Managers’ Index for December, likely to improve to 41.2 from 37.2 prior, will decorate the calendar. However, major attention should be paid to the risk catalysts and the BOJ moves for clear directions.

Technical analysis

A clear downside break of the one-week-old ascending support line, now resistance around 133.80, directs USD/JPY bears towards the four-month low marked the last week around 130.55.