- USD/JPY gained traction for the third day in a row and soared to a new two-decade high.
- The recent widening of the yield spread between the US and Japan continued to support the move.
- A softer risk tone underpinned the JPY as a safe haven and capped amid overbought conditions.
The pair USD/JPY remained near two-decade highs in the American session and was last seen trading in the 132.80-132.85 area, up nearly 1% on the day.
The recent widening of the US and Japanese government bond yield spread helped the USD/JPY pair build on last week’s strong positive move and gain traction for the third day in a row on Tuesday. It is worth remembering that the Bank of Japan has promised unlimited bond-buying operations to defend its near-zero target for 10-year yields.
By contrast, the benchmark 10-year US government bond yield held above 3.0% amid concerns that the global supply chain disruption caused by the Russian-Ukrainian war will drive prices higher. consumer prices. This could force the US central bank to tighten monetary policy at a faster pace, which, in turn, acted as a tailwind for US bond yields.
Meanwhile, high yields on US Treasuries underpinned the dollar, which was seen as another factor providing an additional boost to the USD/JPY pair. However, a softer risk tone offered support to the safe-haven Japanese yen and prevented traders from making further bullish bets on the pair amid extremely overbought conditions on short-term charts.
Market sentiment remains fragile amid expectations that a more aggressive move by major central banks to limit inflation could pose challenges to global economic growth. Apart from this, traders also seemed reluctant and may now prefer to wait on the sidelines ahead of the latest US consumer inflation figures, due for release on Friday.
The backdrop appears to be leaning heavily in favor of bullish traders, although it would be wise to wait for a short-term consolidation or modest pullback before positioning for further gains. In the absence of top-tier US economic data on Tuesday, US bond yields, dollar price dynamics and broader market risk sentiment continue to weigh on the USD/JPY pair. .
Technical levels
Source: Fx Street
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