USD/JPY shrugs off Japan’s covid woes, tracks Nikkei 225 gains around mid-109.00s

• USD/JPY reverses the pullback from five-week top, refreshes intraday high.
• Market sentiment buoyed after US Jobless Claims, Fed comments rejecting policy alteration.
• Japan to escalate emergency measures in five prefectures, US CDC allows no mask for fully vaccinated people.
• US Retail Sales, Michigan Consumer Sentiment Index will be eyed.

USD/JPY takes the bids around 109.60, up 0.10% intraday, as Tokyo welcomes the risk-on mood, despite coronavirus (COVID-19) at home, on Friday. The underlying sentiment could be traced to the US CDC update and the receding odds of the Fed’s immediate policy action.

During the early Asian session, Japan’s Kyodo News conveyed nearly certain government plans to impose tougher restrictions under a quasi-state of emergency in five more prefectures amid growing calls for quicker response to an increasing number of infections caused by highly contagious variants of the coronavirus. Further, the Yoshihide Suga-led government also reduces the number of visiting officials to this summer's games to 90,000 or fewer, per the news. Additionally, Reuters also quoted Japanese Economy Minister Yasutoshi Nishimura as saying, "Japan will add Hokkaido, Okayama and Hiroshima prefectures to the state of emergency now covering Tokyo, Osaka and four other prefectures."

Alternatively, US Centers for Disease Control and Prevention (CDC) pushes for no mask-mandate for fully vaccinated people, which in turn strengthened the market optimism initially backed by 14-month high US Jobless Claims. Also on the risk-positive side were the comments from the US Federal Reserve (Fed) rejecting the need for policy alteration unless witnessing “several more months of data”.

Other than the US and Japan updates, fears of the India strain of the covid and geopolitical tussles in the Middle East also try to recall the market bears but fail of late.

As a result, S&P 500 Futures rises 0.20% tracking Wall Street benchmarks whereas the US 10-year Treasury yield stays pressured around 1.66% after declining 4.4 basis points (bps) the previous day. Further, Japan’s Nikkei 225 rises 1.3% by the press time.

While risk catalysts, mainly the virus updates, keep the driver’s seat, the US Retail Sales for April, as well as the preliminary readings of the Michigan Consumer Sentiment Index for May will be the key data to watch for near-term USD/JPY moves.

Technical analysis

USD/JPY teases confirmation of a short-term falling wedge bullish chart pattern, which in turn could recall the 110.00 threshold on the chart. Meanwhile, 109.40 restricts the quote’s immediate declines.