- USD/JPY undergoes a spectacular intraday reversal from an almost two-week low.
- A positive risk tone and a nice pickup in dollar demand offer support for the pair.
- A pullback in US bond yields limits the significant rise in the dollar and USD/JPY.
The pair USD/JPY attracts aggressive buying near 145.45 zone and rallies over 425 pips from the low of almost two weeks reached this Monday. However, the pair pulls back a few pips from the daily high, though manages to stay above the 149.00 level during the first part of the European session.
The Nikkei newspaper reported over the weekend that the Japanese government and the Bank of Japan had intervened in the foreign exchange market on Friday. This was cited as a key factor behind the USD/JPY pair’s decline during the Asian session on Monday, dragging the pair away from the highest level since August 1990 set on Friday.
The Japanese authorities, however, They declined to comment on it., which, together with the appearance of new buying around the US dollar, helps the USD/JPY pair to reverse the intraday decline. Furthermore, signs of stability in the financial markets weigh on the JPY safe haven and offer additional support to the pair, although momentum stalls near the 149.70 area.
A fresh pullback in US Treasury yields acts as a dollar headwind and proves to be a key factor limiting USD/JPY’s rally. In fact, the benchmark 10-year US government bond yield retreated further from a 15-year high on the back of news that Some Fed Officials Are Signaling Increased Discomfort With Outsized Rate Hikes.
Nevertheless, the Fed is expected to continue to tighten monetary policy to curb inflation. The Bank of Japan, for its part, remains committed to its ultra-expansive policy, which is a big departure from the aggressive stance taken by other major central banks. This could continue to weigh on the yen and help limit the decline in the USD/JPY pair.
Market participants now await the US economic docket, with preliminary PMI data for the month of October. This, along with US bond yields, will influence dollar price dynamics and give the USD/JPY pair some momentum. Additionally, traders will be guided by the broader risk sentiment to take advantage of some short-term opportunities.
Technical levels to watch
Source: Fx Street
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