On Monday, a small amount of purchasing was seen in the USD/JPY, halting its recent decline from a multi-year peak.
A generally bullish risk tone weakened the relatively secure JPY and provided additional support for the main currencies. Rising Fed rates, rising expectations, and rising US bond rates contributed to a resurgence of USD demand and a slight boost to the currency.
Insights On The Technical Front
USD/JPY CHART Source: Tradingview.com
The USD/JPY cross kept its bullish tone throughout the early European session and was last seen hanging near 115.75, only a few pips underneath the day’s high.
Fresh buying in the USD/JPY pair at the mid-115.00s on Monday was aided by a combination of supportive factors, allowing the pair to maintain its recent drop from a five-year high reached last week.
An Outline Of The Fundamentals
Because of a generally upbeat tone in the global markets, the relatively secure Japanese Yen has been undermined, a tailwind for the major.
Bulls also took cues from rising US Treasury bond rates, which helped boost interest in the US Dollar despite greater acceptance of the Federal Reserve’s objective of quicker policy tightening in the wake of the financial crisis.
In the wake of the disappointing headline nonfarm payrolls report, which showed that the economy created just 199K jobs in December, the unemployment rate dropped to 3.9%, compensating for the disappointment.
In addition, wages had another solid rise, which bolstered market expectations for a Fed rate hike in March. As a result, the yield on US Treasury bonds increased by another percentage point. The return on the benchmark 10-year Treasury note jumped to 1.80%, the highest since January 2020.
In contrast, the yield on the 10-year JGB has remained close to zero as a result of the Bank of Japan’s bond yield management strategy.
This led to a further widening of the yield disparity between the United States and Japan, which was considered another factor contributing to strengthening the USD/JPY pair.
Despite this, the fundamental background appears to be solidly in favor of optimistic traders at this time. A follow-up rise over the 116.00 level will confirm the optimistic view and pave the way for continuing the recent up-trend, which is currently underway.
In the absence of any significant market-moving data reports from the United States, the yields on US Treasury bonds will continue to play an important role in determining the direction of the USD price dynamics.
Additionally, traders may take advantage of short-term chances in the USD/JPY pair by taking cues from the overall risk mood in the marketplace.
While the testimony of Federal Reserve Chairman Jerome Powell will be the primary focus on Tuesday, the publication of the newest US consumer inflation numbers on Wednesday will be the second most important event in the coming week.
