USD/JPY slides towards 147.00 amid off in Japan, sluggish yields and North Korean missile test

USD/JPY bears keep the reins for the third consecutive day even as Tokyo cheers the Culture Day holiday. That said, the quote’s latest weakness could be linked to the US dollar’s failure to keep the post-Fed gains, as well as sluggish yields. Also exerting downside pressure on the yen pair could be the fears emanating from North Korea’s test-firing of missiles toward Japan and South Korea.

North Korea fired an unidentified ballistic missile toward the East Sea that has since been reported to have flown over Japan, per Reuters. Following the same, Japan warns residents to take shelter in the threat of the North Korean missile. Recently, the US warns Pyongyang over such an effort and raised market fears in Asia.

On the same line could be the coronavirus fears from China as the lockdown surrounding the area involving the world’s largest iPhone factory defied hopes of easing the dragon nation’s zero-covid policy. Additionally, Reuters quotes China’s latest National Health Commission figures to suggest an uptick in coronavirus cases. The news states, “China reported 3,372 new COVID-19 infections on Nov. 2, of which 581 were symptomatic and 2,791 were asymptomatic.”

Elsewhere, the US 10-year bond coupons ease to 4.096% while its two-year counterpart snaps a four-day uptrend as it drops to 4.611% at the latest. Overall, the bond yields remain inactive due to Japan’s absence from the Treasury markets. That said, the Asia-Pacific equities are down but the S&P 500 Futures print mild gains amid a lackluster session ahead of the European open.

On Wednesday, Fed’s 75 bps increase in the benchmark rate initially triggered the US dollar’s slump as the rate statement highlighted the odds of a slower rate hike. The update stated, “Cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  However, Powell’s speech propelled the greenback as it cited the need to bring down inflation “decisively” while also suggesting a bit longer play for the restrictive policy.

Moving ahead, an absence of Japanese traders may restrict the odds of the USD/JPY rebound while the sluggish yields exert downside pressure on the pair as traders await the US ISM Services PMI, forecasted to ease to 55.5 in October compared to 56.7 previous readings. Following that, Friday’s US Nonfarm Payrolls (NFP) will be the key, mainly due to the strong ADP data.

Technical analysis

A downside break of the 21-DMA support, near 147.60 by the press time, directs USD/JPY bears towards the six-week-old ascending support line, near 146.00 at the latest.