USD/JPY recovers heading to multi-day highs

• A combination of supportive factors pushed USD/JPY higher for the second day in a row.
• The risk appetite boost, the policy divergence between the Fed and the Bank of Japan, and rising US bond yields extended support.
• The resurgence in demand for the USD provided an additional boost, taking the pair close to 136.00.

The pair USD/JPY it continued its intraday rise during the early hours of the American session and reached a new three-day high around the 136.30 area in the last hour.

Markets were optimistic on the hope that inflation is nearing its peak, bolstered by the recent drop in commodity prices. Additionally, China announced that it would ease COVID-19 quarantine requirements for international travelers and raised expectations for a revival of global growth. This, in turn, boosted investor confidence and undermined the safe haven of the Japanese yen.

The flow of risk appetite pushed up US Treasury yields, widening the gap between US and Japanese bond yields. This, along with the divergence in monetary policy adopted by the Bank of Japan and the Federal Reserve, weighed heavily on the yen. Additionally, the strong pickup in US dollar demand also contributed to the strong supply tone surrounding the USD/JPY pair.

The intraday bullish momentum, which also marks the third consecutive day of positive movement, could also be attributed to some technical buying above the 136.00 round level. This, in turn, could have set the stage for an extension of the bullish trajectory, back to the test of a 24-year high, around the 136.70 region touched last week.

As of now, market attention is focused on Fed Chairman Jerome Powell’s appearance on Wednesday. Market participants will be looking for clues about the US central bank’s policy tightening path. This will play a key role in influencing short-term USD price dynamics and help investors determine the next leg of a directional move for the USD/JPY pair.

Technical levels