USD/JPY hovers around mid-115.00s amid sluggish yields, mixed Japan Q4 GDP

USD/JPY renews intraday low to 115.50, paring the previous day’s gains as Tokyo opens for Tuesday. In doing so, the yen pair justifies a pullback in the US Treasury yields and market’s indecision, as well as mixed GDP data from home.

Japan’s Preliminary Gross Domestic Product (GDP) for Q4 rose 1.3% QoQ versus 1.4% expected and -0.9% prior. Further, GDP Annualized also reversed the previous readouts of -3.6% with +5.4% figures but stayed below 5.8% market consensus. Further, the preliminary readings of GDP Deflator dropped to -1.3% YoY, below -1.2% expected and prior.

That said, the US Treasury yields consolidate the previous day’s recovery moves with the fresh drop to 1.979%, down 1.7 basis points (bps). On Monday, the bond coupons regained upside momentum after stepping back from a 2.5-year high on Friday whereas the Wall Street benchmark closed in the red, despite mildly positive week-start performance.

The recovery in US Treasury bond coupons, as well as in the USD/JPY prices, could be linked to the market’s fears of an immediate Russian invasion of Ukraine. Also weighing on the sentiment was hawkish Fedspeak.

The Western leaders initially highlighted fears of Russia’s attack on Ukraine during this week before market chatters of February 16 to be the D-day. On the positive side were headlines covering Russian Foreign Minister Sergey Lavrov who told President Putin that the US had put forward concrete proposals on reducing military risks and that he could see a way to move forward with talks. Russia’s Lavrov also mentioned that EU and NATO responses have not been satisfactory, which in turn highlights risk-off mood despite easing fears.

On the other hand, St. Louis Fed President James Bullard reiterated his call for 100 basis points (bps) in interest rate hikes by July 1 by citing the last four inflation reports which show broadening inflationary pressures.

Against this backdrop, S&P 500 Futures print mild gains but Japan’s Nikkei 225 begins the day on a negative side.

Looking forward, major attention will be given to the Fedspeak and risk catalysts. However, US Producer Price Index (PPI) for January, expected 9.1% YoY versus 9.7% prior, will join Empire State Manufacturing Index for February, market consensus 12 versus -0.7% previous readouts, to decorate the daily calendar and direct short-term USD/JPY moves.

Technical analysis

USD/JPY remains sidelined between a three-week-old support line near 115.00 and double-top around 116.35-40.