- USD / JPY struggles to gain any significant traction and remains trapped in a range on Thursday.
- A softer tone around the USD prevents the bulls from opening new positions and limits the rise of the pair.
- A combination of factors weighs on the safe-haven JPY and should support the pair’s upward move.
The pair USD/JPY lacks a firm directional bias and is consolidated within a range below 111.50 during the European session on Thursday.
A combination of factors has helped the USD / JPY gain some positive traction during the early part of the trading action on Thursday, although the rally has lacked bullish conviction. Risk appetite in the markets has weighed on the safe-haven Japanese yen, which has come under further pressure after the Bank of Japan (BoJ) cut its assessment for five of Japan’s nine regional economies.
Global risk sentiment witnessed a shift on Wednesday after Russian leaders reassured Europe on gas supply. Apart from this, the Republican leader of the United States Senate Mitch McConnell said that his party would allow an extension of the debt ceiling in December to avoid a default on the federal debt. This further increased investors’ appetite for assets with the highest perceived risk.
The pair’s bulls have further taken the indications of a modest rebound in U.S. Treasury yieldsAlthough a softer tone around the US dollar has limited any significant rally for USD / JPY. The fall, however, continues to fall amidst the expectations of an early tightening of monetary policies by the Fed and the recent widening of the government bond yield differential between the United States and Japan.
US bond yields have been rebounding since late September, when the Fed signaled that it would begin reducing its monthly bond purchases in late 2021. Markets also appear to have begun pricing in the possibility of a move higher. rates from the Fed in 2022 amid concerns that rising energy prices will fuel inflation. This should act as a tailwind for the dollar and the USD / JPY pair.
Fundamental backdrop looks tilted in favor of bulls and supports prospects for an extension of the recent upward move in the pair witnessed in the past three weeks. However, investors seem reluctant to open aggressive positions, preferring to wait on the sidelines before the release of the monthly US NFP jobs report on Friday.
Investors, meanwhile, could take cues from Thursday’s release of US initial weekly jobless claims data, to be released at the start of the US session. Aside from this, US bond yields and broader market risk sentiment will influence the USD / JPY pair and allow investors to seize some significant opportunities.
USD / JPY technical levels
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