USD/JPY looks to regain 113.00 amid softer yields, Omicron fears

USD/JPY struggles to defend the first daily gains in three, taking rounds to 113.00 during the initial Tokyo open on Thursday.

The yen pair seems to take clues from the USD rebound and a jump in the global market volatility to portray the latest moves. However, the rush to risk safety amid mixed concerns over the Fed’s next move and the Omicron crisis keep the Japanese currency on the top of the safe-haven list and probe the bulls.

That said, the DBC’s Volatility Index (VIX) stays firmer around the yearly top as investors stay divided over the Fed’s next moves. Federal Reserve (Fed) Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission. On the contrary, Federal Reserve Bank of New York President John C. Williams said, per New York Times, that Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.

The same weigh on the  US 10-year Treasury yields to stay pressured near a two-month low, surrounding 1.42% by the press time, whereas the S&P 500 Futures print 0.30% intraday gains after the Wall Street benchmarks marked second consecutive daily loss.

However, the rush to risk-safety gets support from the latest South African covid variant news. As the first Omicron case in the US pushed President Joe Biden’s administration to extend the rules for wearing a mask in public transit. “US President Joe Biden's administration will extend requirements for travelers to wear masks on airplanes, trains and buses and at airports and train stations through mid-March to address ongoing COVID-19 risks,” said Reuters quoting anonymous sources.

Adding to the risk-aversion could be the latest economic forecast from the Organisation for Economic Co-operation and Development (OECD), suggesting the world GDP growing by 5.6% (previous 5.7%) in 2021, 4.5% in 2022, 3.2% in 2023, per Reuters.

That said, the pre-NFP trading lull seems to allow USD/JPY traders to consolidate recent losses. However, the US jobless claims and virus updates will be important for clear direction before the monthly jobs report, up for publishing on Friday.

Technical analysis

The resistance-turned-support line from March, around 112.70, restricts short-term USD/JPY declines. However, buyers may not return until the quote stays below the 50-DMA level of 113.35.