USD/JPY jumps to fresh monthly high, around 114.30 area amid positive risk tone

• USD/JPY added to the overnight gains and scaled higher for the second straight day on Wednesday.
• Easing worries about the Omicron variant undermined the safe-haven JPY and extended support.
• The Fed’s hawkish outlook acted as a tailwind for the USD and remained supportive of the move.
• Retreating US bond yields capped the USD and might hold back bulls from placing aggressive bets.

The USD/JPY pair broke out of its intraday consolidation phase and jumped to a fresh monthly high, around the 114.30 region during the early part of the European session.

The pair gained positive traction for the second successive day on Thursday and was supported by a combination of factors. A generally positive risk tone, along with the Bank of Japan's dovish stance undermined the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.

Concerns about the rapidly-spreading Omicron coronavirus variant eased amid reports that the current vaccines may be more effective than first thought in fighting the Omicron variant. This, in turn, boosted invesotrs' confidence and drove flows away from traditional safe-haven currencies.

The JPY was further weighed down by a more dovish stance adopted by the Bank of Japan. The minutes of the latest BoJ policy meeting released earlier this Wednesday showed that board members backed the need to maintain ultra-lose policy measures as the 2% inflation target is still far off.

On the other hand, the US dollar drew some support from the Fed's hawkish outlook, indicating at least three rate hikes next year. That said, a fresh leg down in the US Treasury bond yields held back the USD bulls from placing aggressive bets and could cap any further gains for the USD/JPY pair.

Market participants now look forward to the US economic docket, highlighting the release of the final Q3 GDP print and the Conference Board's Consumer Confidence Index. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair.

Apart from this, traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment for some short-term opportunities. That said, the movement is likely to remain limited amid thin liquidity conditions heading into the year-end holiday season.

Technical levels to watch