USD/JPY climbs to two-week high, around mid-129.00s amid stronger USD/positive risk tone

• USD/JPY scaled higher for the third straight day and climbed to a two-week high on Wednesday.
• Rising US bond yields assisted the USD to gain follow-through traction and remained supportive.
• A positive risk tone undermined the safe-haven JPY and contributed to the ongoing positive move.

The USD/JPY pair gained traction for the third successive day on Wednesday and climbed to a two-week high, around mid-129.00s during the early European session.

The US dollar built on the previous day’s solid rebound from over a one-month low and continued drawing support from some follow-through rise in the US Treasury bond yields. Fed Governor Christopher Waller on Monday backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. This, in turn, pushed the yield on the benchmark 10-year US government bond to a nearly two-week high, which resulted in a further widening of the US-Japanese yield differential and drove flows away from the Japanese yen.

It is worth recalling that the Bank of Japan has vowed to keep its existing ultra-loose policy settings and promised to conduct unlimited bond purchase operations to defend its near-zero target for 10-year yields. Apart from this, a generally positive risk tone undermined the safe-haven JPY and acted as a tailwind for the USD/JPY pair. Wednesday’s positive move could further be attributed to some technical buying above the 129.00 round figure, which might have already set the stage for a further appreciating move. Hence, some follow-through strength, towards reclaiming the 130.00 psychological mark, now looks like a distinct possibility.

Market participants now look forward to the US economic docket, featuring the ISM manufacturing PMI and JOLTS Job Openings later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities.

Technical levels to watch