USD/JPY eases from one-month high below 115.00 on Japan data, inactive markets

• USD/JPY refreshes intraday low, consolidates biggest daily gains in three weeks.
• Japan’s Industrial Production rallied the most in 16 months during November.
• Japan government says industrial output shows signs of picking up.
• Market sentiment remains firmer amid easing Omicron fears, hopes of stimulus and holiday mood.

USD/JPY takes offers to renew intraday low around 114.75, down 0.10% on a day as Tokyo opens for Tuesday.

The yen pair buyers cheered risk-on mood the previous day to print the highest levels since late November. However, the recently mixed data and inaction in markets joined a rethink over the Omicron headlines to trigger the consolidation of the heaviest daily gains in three weeks.

Japan’s Unemployment Rate grew past 2.7% forecast and prior to 2.8% whereas Jobs/Applicants Ration reprint 1.15 figures versus 1.16 expected. Further, the preliminary readings of Industrial Production for November jumped the most since August 2020, up 7.2% MoM versus 4.8% market consensus and 1.8% anticipated numbers. The MoM readings for Industrial Production also provided an upside surprise with +5.4% figures compared to -5.0% expected and -4.1% previous readouts.

Following the strong Industrial Production data, Japan’s Government Official said, per Reuters, “Industrial output shows signs of picking up.” The diplomat also added, “While the chip shortage's impact on the supply chain is shrinking, it's still there.”

In addition to the upbeat Japanese data and comments from Tokyo, a rethink over the previous optimism surrounding the South African covid variant, namely Omicron, as well as an absence of major updates, might have also probed the USD/JPY bulls of late.

That said, studies from South Africa and the UK showing fewer odds of hospitalization due to the Omicron covid variant joined hopes of more stimulus from the US and China to favor the risk appetite on Monday. On the same line was the action by the US Centers for Disease Control and Prevention (CDC) that reduced the isolation and quarantine period for the general population from the previous 10 to five. Additionally, ongoing talks over Iran’s denuclearization and a global push for peace between Russia and Ukraine also seem to have offered relief to the markets.

Amid these plays, the US 10-year Treasury yields pause the previous day’s declines around 1.48% whereas S&P 500 Futures fail to copy Wall Street gains, down 0.14% intraday by the press time. At home, Japan’s Nikkei is up over 1.0% at the latest whereas the rest of the Asia-Pacific markets trade mixed.

Looking forward, an absence of major catalysts keep Omicron headlines on the driver’s seat before the US housing and Richmond Fed Manufacturing data could entertain the traders.

Technical analysis

A two-week-old ascending triangle formation restricts short-term USD/JPY moves between 115.00 and 114.50. Given the RSI’s nearness to the overbought conditions, a downside break of the triangle will gain a strong market reaction, likely directing the quote towards the monthly low near 112.56, versus the otherwise case.