The yen fell to a near five-year low against the U.S. currency on Wednesday and saw losses on other crosses. The rationale behind the move can be linked to investors bet that the Bank of Japan (BOJ) would fall behind its counterparts in tightening monetary policy to curb high inflation.

Market’s receding fears of the South African covid variant, Omicron, gives hope of faster rate hike by the US Federal Reserve (Fed).

Elsewhere, Japan’s consumer confidence fell slightly in December, the government said on Wednesday, as domestic COVID-19 cases started rising towards the end of the month. A Cabinet Office survey showed the sentiment index for general households, which includes views on incomes and jobs, was at 39.1 in December, compared with 39.2 in November.

On the other hand, Fed Funds futures show traders see rates lifting off by May. Analysts at Standard Chartered now expect 25-basis point hikes in March and June rather than one hike in September. U.S. two-year and five-year yields stand near pandemic highs and benchmark 10-year yields are up more than 14 basis points this week.

Minneapolis Federal Reserve Bank President Neel Kashkari, also known as a dove, said he expects the U.S. central bank to need to raise interest rates two times this year to address persistently high inflation, by reversing his long-held view that rates will need to stay at zero until at least 2024.

It is clear that Investors have come to a view that Omicron is less disruptive to the global economy than previous variants of the coronavirus since studies have indicated the risk of hospitalization is lower.

On Economic data front, Softer-than-expected figures of Japan’s Monetary Base for December which came at 8.3% versus 8.6% forecast and 9.3% prior also favors the move. However, The US economics also has eased during the latest releases as the ISM Manufacturing PMI dropped to the lowest in 11 months in December which came as 58.7 versus 60.0 forecast and 61.1 prior whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M which can challenge the bulls.

USD/JPY 4 Hour Chart:

Support: 115.48 (S1), 114.84 (S2), 114.40 (S3).

Resistance: 116.55 (R1), 116.99 (R2), 117.63 (R3).

Traders will be keen to watch the ADP report to direct the move further. Meanwhile, Amid all the catalysts favoring the yen against the greenback. We expect bullish trend for USD/JPY.