USD/JPY tracks firmer yields to snap three-day downtrend near 114.00

• USD/JPY consolidates the heaviest daily loss around one-week low, recently refreshing intraday high.
• Markets brace for Fed, yields, equities begin the key week on a positive side.
• Japanese government eyes more areas to add to quasi-emergency status amid surging cases.
• US Preliminary Markit PMIs for January eyed for intraday moves, Wednesday’s FOMC is the week’s crucial event.

USD/JPY picks up bids to refresh intraday high near 113.85, up 0.20% intraday, during the initial hours of Tokyo trading on Monday. In doing so, the yen pair rises for the first time in four days while tracking firmer US Treasury yields as traders brace for Wednesday’s Federal Open Market Committee (FOMC) meeting.

At home, preliminary readings of Japan’s Jibun Bank Manufacturing PMI from January rose past 54.3 to 54.6, hitting a four-year high. It’s worth noting. However, the latest prints of Jibun Bank Services PMI slumped to 46.6 versus 52.1 in December. Additionally, “The government of Prime Minister Fumio Kishida is expected to place more prefectures under a COVID-19 quasi-state of emergency as the number of cases continues surging, government sources said Sunday,” per Japanese media Kyodo News.

That said, US 10-year Treasury yields rose 3.6 basis points (bps) to 1.783%, snapping a three-day decline, as traders anticipate hawkish Fed verdict, amid firmer inflation, during this week’s key meeting.

During the last week, US data was mostly mixed but the latest Fedspeak has been hawkish, suggesting that the US central bank is on the way to chart March’s rate hike on Wednesday. Adding to the bullish bias were the chatters concerning Omicron-linked supply chain damage and inflation woes. It’s worth noting that comments from US President Joe Biden and International Monetary Fund Managing Director Kristalina Georgieva were both in support of the Fed’s hawkish bias, which in turn reinforced Fed rate hike concerns.

It’s worth observing that escalating fears of a Russian invasion of Ukraine also favor the US Treasury yields and the USD/JPY prices. Furthermore, mildly bid S&P 500 Futures adds strength to the pair’s rebound even as Nikkei 225 drops 0.80% intraday by the press time.

Moving on, the preliminary readings of January US Markit PMIs will be crucial for intraday trade direction. However, major attention will be given to Wednesday’s FOMC and Thursday’s US Q4 GDP for a clearer view.

Technical analysis

A clear downside break of an ascending support line from early October, near 114.00 by the press time, directs USD/JPY towards the 100-DMA support of 113.27.