USD/JPY Fundamental Daily Forecast – 115.615 or 112.538 – Depends on Omicron Response to Vaccines

The Dollar/Yen is trading higher on Tuesday after reassuring news on the Omicron coronavirus variant drove up demand for riskier assets. U.S. Treasury yields and stocks rose on the news that initial observations suggested Omicron patients had only mild symptoms, erasing all of Friday’s heavy losses.

At 06:41 GMT, the USD/JPY is trading 113.696, up 0.197 or +0.17%. On Monday, the Invesco CurrencyShares Japanese Yen Trust (FXY) ETF settled at $82.70, down $0.79 or -0.71%.

Potential Impact of Omicron Being Downplayed

While Omicron has spread to about one-third of the U.S. states as of Sunday, Dr. Anthony Fauci, the top U.S. infectious disease official, told CNN that “thus far it does not look like there’s a great degree of severity to it.”

“The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note.

Yen Retreats as Risk Sentiment Returns to Wall Street

The Dow led Wall Street shares higher on Monday, as economy-linked banks and energy stocks charged back and fear about the Omicron variant eased, even as investors braced for another roller-coaster ride like last week’s, Reuters wrote.

The tech-heavy NASDAQ was also up but lagged the Dow and S&P 500’s gains, facing early headwinds from chipmakers mainly due to a slide in Nvidia.

Wall Street’s major indexes swung wildly last week as investors digested news of the COVID-19 Omicron variant and Federal Reserve Chair Jerome Powell’s hawkish comments about a speedier taper to tackle surging inflation.

Treasury Yields Climb

U.S. Treasury yields are edging higher early Tuesday after posting a strong rebound the previous session, following Friday’s pullback, with investors monitoring the omicron COVID-19 variant and the Federal Reserve’s potential policy tightening.

Japan Economic News

Japan’s household spending posted an annual drop for the third straight month in October, though the pace of decline slowed, as consumer sentiment struggled to stage a convincing recovery after coronavirus curbs ended.

The world’s third-largest economy has lagged other nations in its recovery from the heath crisis, most due to sluggish consumption. Analysts expect consumer sentiment to pick up this quarter as local COVID-19 infections fell.

Household spending fell 0.6% in October from a year earlier, after a 1.9% decline in September and a 3.0% drop in August, government data showed, matching the median market forecast in a Reuters poll.

Short-Term Outlook

Strong demand for risk and rising Treasury yields are expected to continue to support the USD/JPY on Tuesday. The wildcard is the Omicron coronavirus variant. So far we know little about it, but what we know is not causing a bearish reaction in the market place.

Scientists continue to study the variant and could release a report by the end of the week. If they determine the vaccines are effective against the variant then the USD/JPY could shoot up to 115.615 rather quickly. If the variant is resistant to vaccines then look for a plunge under 112.538.