- USD/JPY saw some gains from the multi-year high hit earlier this Tuesday.
- The retreat in US bond yields weighed on the dollar and triggered aggressive prolonged easing trading.
- The risk boost benefited the safe-haven JPY and further contributed to the selling bias.
The pair USD/JPY has seen an intraday reversal from a multi-year high and has fallen to the area of ​​117.70 during the European session on Tuesday. At time of writing, the pair is bouncing back just below 118.00, losing around 0.20% on the day.
A combination of factors led the bulls in the pair to withdraw profits and led to a corrective pullback in the USD/JPY pair from the 118.45 areathe highest level since January 2017. A new wave of risk aversion offered some support to the safe-haven Japanese yen. Aside from this, a pullback in US Treasury yields turned out to be another factor that inspired bears in the pair and contributed to the intraday drop.
Market sentiment remains fragile in the wake of the risk of a new escalation in the conflict between Russia and Ukraine and the latest outbreak of COVID-19 in China. This, to a greater extent, overshadowed the latest optimism about a possible diplomatic resolution to end the war in Ukraine and triggered a drop in stock markets. The monetary flow and risk aversion dragged US bond yields lowerwhich weighed on the US dollar and further pressured the USD/JPY pair.
However, the fall remains supported amid expectations of an imminent start of the cycle of tightening monetary policies by the Fed. Markets seem convinced that recent geopolitical events could do little to prevent the US central bank from raising its funds rate to rein in inflation expectations. This should act as a tailwind for US bond yields and supports the prospects for further buying around the USD.
Conversely, The Bank of Japan (BoJ) is widely expected to maintain the current dovish policy stance at its meeting on Friday. The divergence in policy outlooks from the BoJ and the Fed could continue to weigh on the JPY and lend support to the USD/JPY pair. Investors may also be reluctant to open aggressive positions ahead of key central bank risks: the outcome of the FOMC meeting on Wednesday and the BoJ’s policy decision on Friday.
USD/JPY technical levels
Source: Fx Street
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