USD/JPY hovers near daily high, above mid-115.00s amid risk-on/rallying US bond yields

• A combination of supporting factors assisted USD/JPY to attract some dip-buying on Tuesday.
• A turnaround in the risk sentiment undermined the safe-haven JPY and acted as a tailwind.
• Rallying US bond yields, hawkish Fed expectations support prospects for additional gains.

The USD/JPY pair held on to its modest intraday gains through the first half of the European session and was last seen trading near the daily high, around the 115.60 region.

The pair attracted some dip-buying near the 115.25 area on Tuesday and turned positive for the second successive day, with bulls looking to build on the overnight bounce from the 115.00 mark. The intraday uptick was sponsored by a positive turnaround in the global risk sentiment, which tends to undermine the safe-haven Japanese yen.

The Russian-Ukraine tensions eases after the former said that several military drills have finished and troops near the border have started returning to bases. This helped ease worries about an imminent Russian invasion of Ukraine and triggered a sharp recovery in the equity markets, which, in turn, weighed on safe-haven assets.

Bullish traders further took cues from a fresh leg up in the US Treasury bond yields, though modest US dollar weakness kept a lid on any further gains for the USD/JPY pair. The risk-on flow, along with the prospects for a faster policy tightening by the Fed pushed the yield on the benchmark 10-year US government bond back above the 2.0% threshold.

The markets seem convinced that the US central bank would adopt a more aggressive policy stance to combat stubbornly high inflation and have been pricing in a 50 bps rate hike in March. This, in turn, supports prospects for the emergence of some USD buying at lower levels and a further near-term appreciating move for the USD/JPY pair.

Market participants now look forward to the release of the US Producer Price Index, due later during the early North American session. This, along with 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