USD/JPY braces to the 116.00 figures amid higher US T-bond yields after FOMC minutes

• The USD/JPY edges higher as the Asian session starts.
• The Federal Reserve is looking to raise rates sooner than later while eyeing its balance sheet reduction.
• USD/JPY Price Forecast: Tilted upwards, but oscillators in overbought conditions suggest a pause before launching an attempt to 2017 yearly highs.

On Wednesday, as the North America session wanes, the USD/JPY advances to a four-year high above 116.00 for the seventh consecutive day, trading at 116.13 at the time of writing. The market sentiment is downbeat as hawkish Fed signals that it could raise rates sooner to tame inflation. That said, US equity indices post losses led by the tech-heavy Nasdaq Composite, which lost 3.12% in the day.

In the meantime, US Treasury yields advanced sharply, with the 10-year T-bond yield rising three and a half basis points, sitting at 1.70%, a tailwind for the USD/JPY due to its high correlation with the 10-year note.

The US Dollar Index, which measures the greenback’s value against a basket of six rivals, slides some 0.08%, sitting at 96.18, despite higher US yields.

Summary of Fed’s FOMC meeting minutes

The Federal Reserve revealed its December meeting monetary policy minutes during the North American session. Fed policymakers said that the labor market is very tight. The US central bank might hike rates sooner than expected, followed by the beginning of reducing its assets holdings, as Fed officials discussed in the meeting.

“The minutes almost never change anything. They may have reinforced a little bit the Fed’s intent on raising rates, but not very much,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.

Following the release of the minutes, futures of the Federal Funds Rates were pricing in an 80% possibility of a 25 basis points hike by the US central bank. According to the CME FedWatch Tool, the probability of a rate hike to 0.25-0.50% is 64.1%, while keeping it unchanged is at 32.2%.

USD/JPY Price Forecast: Technical outlook

The USD/JPY daily chart depicts the pair has an upward bias, confirmed by the position of the daily moving averages (DMAs), located below the spot price. However, oscillators like the Relative Strength Index at 74 shown that the trend is overextended and could print a leg-down before attempting a move towards 2017 cycle highs around 118.65. 

If the USD/JPY retraces, the first support would be the November 24 cycle high at 115.52. The breach of the latter would expose 115.00, followed by a test of previous resistance-turned-support October 20 high at 114.70.

To the upside, the USD/JPY first ceiling level would be an upslope trendline that acts as resistance around the 116.50-60 area, and then there is no pivot or cycle high in the way towards the 2017 yearly highs around 118.65.