USD / JPY struggles to find direction and remains stable around the 114.00 level

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  • USD / JPY struggles to retain / capitalize on its modest intraday gains on Friday.
  • A subdued action in the USD price turns out to be a key factor limiting the pair’s rise.
  • Signs of stability in stock markets and high US bond yields support the pair’s upward move.

The pair USD/JPY remains practically unchanged on the day at the start of the European session on Friday, struggling to find direction around the 114.00 level.

The pair has built on the previous day’s rebound from week-long lows and gained some traction during the early part of the trading action on Friday. The news that Evergrande China made funds available for a bond coupon to a trust account helped ease concerns about a credit crunch in China’s real estate sector. This, in turn, has weighed on the safe-haven Japanese yen and acted as a tailwind for the USD / JPY pair.

Secondly, the US dollar has so far struggled to capitalize on the good rally the day before from lows of three weeks. This has been seen as a key factor that has not provided any additional boost to the USD / JPY pair and has limited the initial rally near the 114.20 area. The fall, however, remains weathered amid a further widening of the government bond yield differential between the United States and Japan..

Indeed, the benchmark 10-year US government bond yield rose to 1,683% on Thursday, or the highest level since May 13, amid expectations of an early tightening of monetary policy by the Fed. The speculation was bolstered by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation remains high for the rest of this year.

In contrast, the yield on the Japanese 10-year government bond remained close to zero due to the Bank of Japan’s yield curve control policy. This warrants some caution for aggressive bears and before positioning for any extension of the recent pullback from the nearly four-year highs hit earlier this week.

Market participants now await the release of the US PMI for further momentum later during the US session. This, along with US bond yields, will influence price dynamics around the USD. Investors will take cues from the broader market risk sentiment to seize some short-term opportunities around the USD / JPY pair.

USD / JPY technical levels

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