USD/JPY holds near 113.60 on steady hand at BoJ

USD/JPY remains on the defensive as the European session approaches and was last seen trading near three-day lows, around mid-113.00. After struggling to find bullish acceptance above the 114.00 mark,  USD/JPY sold off on Thursday and reversed the previous day’s FOMC move  to  monthly highs. A softer risk tone has benefited the safe-haven Japanese yen and put some pressure on the pair for the second straight day on Friday.  Investors remain concerned about the economic risks associated with the rapid spread of the Omicron coronavirus variant and the imposition of new restrictions in Europe and Asia. This is evident due to weaker trading sentiment in global equity markets, forcing investors to seek refuge in traditional safe-haven assets.

The flight to safety was bolstered by further declines in US Treasury yields, which left the US dollar bulls on the defensive. This is seen as another factor behind the tone given around the USD/JPY pair. The intraday drop appeared unaffected by the announcement of the Bank of Japan (BoJ) policy decision.

The BoJ left its monetary policy parameters unchanged at the end of the December meeting, but decided to reduce the stimulus package in the event of a pandemic by the end of March 2022 deadline. That said, the decision. Emergency pandemic funding cuts have entered the market and, as such, have failed to provide a significant boost to the USD/JPY pair. In a press conference after the meeting, BoJ Governor Haruhiko Kuroda reaffirmed that the central bank remains ready to ease monetary policy further without hesitation if necessary. Kuroda added that there is high uncertainty about the impact of the spread of the Omicron variant and there is a need to monitor the risks associated with congestion.

Going forward, there is no important market economic data to be released from the US, exposing the USD/JPY pair to market risk. Additionally, US bond yields could influence the US dollar’s price action and create short-term trading opportunities on the weekend.