USD/JPY recovers a major part of its intraday losses, down little around 127.70 region

• USD/JPY attracted some dip-buying on Monday and was supported by a combination of factors.
• The risk-on mood undermined the JPY and acted as a tailwind amid a pickup in the US bond yields.
• The prevalent USD selling bias held back bulls from placing aggressive bets and capped the upside.

The USD/JPY pair recovered a major part of its early lost ground and climbed to the 127.75-127.70 area, back closer to the top end of its daily range during the early European session.

A combination of supporting factors assisted the USD/JPY pair to attract some dip-buying near the 127.15 area on Monday, though modest US dollar weakness kept a lid on any further gains. A generally positive tone around the equity markets undermined the safe-haven Japanese yen and extended support to the major. The risk-on flow was inforced by a goodish pickup in the US Treasury bond yields, which further inspired bulls and acted as a tailwind for spot prices.

On the other hand, the USD dropped to a two-and-half-week low as the markets already seem to have fully priced in at least a 50 bps Fed rate hike move over the next two meetings. This, in turn, held back bulls from placing aggressive bets around the USD/JPY pair. Apart from this, the worsening global economic outlook capped the optimistic move in the markets, which, in turn, warrants some caution before positioning for any meaningful upside for the major.

Investors remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. That said, a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan should continue to help limit any deeper losses for the USD/JPY pair, at least for now.

In the absence of any major market-moving economic releases, the USD price dynamics, along with the US bond yields, will play a key role in influencing the USD/JPY pair's intraday momentum. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities on the last day of the week.

Technical levels to watch