USD / JPY is near the highs of the year, above 111.50

• USD / JPY gained strong follow-up traction on Tuesday and retested the yearly highs.
• Rising US bond yields acted as a tailwind for the USD and continued to act as support.
• The risk aversion momentum did not benefit the safe haven JPY, nor did it hinder the momentum.

The pair USD/JPY It continued to climb higher during the early days of the American session and tested yearly highs around the 111.65 region in the last hour.

The pair extended its recent bullish trajectory and gained strong follow-up traction for the fifth straight session on Tuesday. The widening of the nominal yield spread between the US and Japanese government debt continued to push the flows away from the Japanese yen.

US Treasury yields have rebounded since late last week after the Fed hinted that it would start cutting its bond purchases starting in November. In addition to this, the dot plot indicated that policymakers were inclined to increase interest rates in 2022.

In contrast, the 10-year Japanese government bond yield remained close to zero due to the Bank of Japan’s yield curve control policy. This, coupled with a widespread strength in the US dollar, provided additional momentum to the USD / JPY pair and contributed to the positive momentum.

The bulls did not appear to be affected by the risk reduction momentum, which tends to benefit the safe-haven JPY. Global risk sentiment was hit amid a selloff in money markets, concerns about the debt crisis in China Evergrande and the Group and the intensification of the energy crisis in Europe and China.

US bond yields and broader market risk sentiment would provide some boost to the USD / JPY pair.

Technical levels