USD/JPY surrenders intraday gains amid risk-off impulse, back around mid-114.00s

• USD/JPY struggled to preserve its intraday gains or find acceptance above the 115.00 mark.
• A steep fall in the equity markets benefitted the safe-haven JPY and exerted some pressure.
• Surging US bond yields continued underpinning the USD and helped limit any deeper losses.

The USD/JPY pair surrendered intraday gains to a multi-day high and has now retreated to the lower end of its daily trading range, around mid-114.00s.

The pair gained positive traction during the first half of the trading on Tuesday, albeit struggled to find acceptance or build on the momentum beyond the key 115.00 psychological mark. The widening of the US-Japanese government bond yield differential was seen as a key factor that acted as a tailwind for the USD/JPY pair.

In fact, the yield on the benchmark 10-year US government bond shot to the highest level since January 2022 amid growing acceptance that the Fed would start hiking interest rates in March 2022. Conversely, the yield on the 10-year Japanese government bond remained near zero in the wake of the Bank of Japan's yield curve control policy.

Moreover, the BoJ reiterated that it will maintain ultra-loose monetary policy at the end of its latest monetary policy meeting on Tuesday. In the post-meeting press conference, the BoJ Governor Haruhiko Kuroda reiterated that the Japanese central bank remains ready to ease policy further without hesitation as needed.

Despite the supporting factors, the risk-off impulse forced investors to take refuge in traditional safe-haven currencies, including the Japanese yen and acted as a headwind for the USD/JPY pair. An extended sell-off in the US bond markets tempered investors' appetite for riskier assets and triggered a steep fall in the equity markets.

This, in turn, was seen as the only factor that attracted fresh selling at higher levels and led to the USD/JPY pair's intraday slide of nearly 50 pips. Market participants now look forward to the release of the Empire State Manufacturing Index for a fresh trading impetus later during the early North American session.

Apart from this, the US bond yields will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.

Technical levels to watch