- USD/JPY gained traction for the second straight day and was supported by a combination of factors.
- A generally positive risk tone undermined the safe-haven JPY and remained supportive of the move.
- The overnight rally in the US bond yields further inspired bullish traders amid modest USD strength.
The USD/JPY pair held on to its modest gains heading into the European session and was last seen hovering near the top end of its weekly trading range, around the 115.70 region.
A combination of supporting factors assisted the USD/JPY pair to build on the overnight strong move up and gain some follow-through traction for the second successive day on Thursday. A generally positive risk tone undermined the safe-haven Japanese yen and acted as a tailwind amid modest US dollar strength.
Despite rising geopolitical tensions, hopes of ceasefire talks between Russia and Ukraine remained supportive of a positive tone around the equity markets. In the latest developments, Russia has intensified the bombardment of Ukrainian cities and Russian forces have captured the Black Sea port of Kherson.
Nevertheless, the safe-have demand sparked by Russia’s invasion of Ukraine last week seems to have eased somewhat, which was seen as a key factor that weighed on the JPY. Conversely, the USD drew support from the overnight rally in the US Treasury bond yields, which also contributed to the USD/JPY pair's uptick.
Fed Chair Jerome Powell, during his semi-annual testimony before Congress, said that the US central bank would begin carefully hiking interest rates in March. Powell simultaneously promised that the Fed could take tougher action if inflation levels do not come down and pushed the US bond yields higher.
It, however, remains to be seen if bulls are able to capitalize on the move or the USD/JPY pair meets with a fresh supply at higher levels as investors remain wary of the worsening situation in Ukraine. Hence, it will be prudent to wait for strong follow-through buying before positioning for a further appreciating move.
Market participants now look forward to the release of the usual Weekly Initial Jobless Claims data from the US. This, along with Fed Chair Jerome Powell's second day of testimony before the Senate Banking Committee and the US bond yields, will influence the USD and provide some impetus to the USD/JPY pair.
Technical levels to watch