USD/JPY steadily climbs back to 136.00 mark amid risk-on, rising US bond yields

• A combination of supporting factors pushed USD/JPY higher for the third successive day.
• The risk-on impulse undermined the safe-haven JPY and remained supportive of the move.
• Rising US bond yields further impressed bulls, though subdued USD demand might cap gains.

The USD/JPY pair attracted fresh buying in the vicinity of the 135.00 psychological mark on Tuesday and turned positive for the third successive day. The momentum pushed spot prices to a three-day high during the early part of the European session, with bulls now looking to reclaim the 136.00 round figure.

A generally positive tone around the equity markets undermined the Japanese yen and turned out to be a key factor that acted as a tailwind for the USD/JPY pair. The risk-on impulse pushed the US Treasury bond yields higher, which resulted in the widening of the gap between the US-Japanese bond yields. This, along with a big divergence in the monetary policy stance adopted by the Fed (hawkish) and the Bank of Japan (dovish), continued lending support to the major.

On the other hand, the US dollar languished near a one-week low touched on Monday amid reduced bets for aggressive Fed rate hike moves. The recent slump in commodity prices raised hopes that inflation might be nearing its peak and forced investors to reassess expectations that Fed would tighten its monetary policy at a faster pace. This continued weighing on the USD, which might hold back bulls from placing aggressive bets around the USD/JPY pair and cap gains, at least for now.

Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for the resumption of the recent strong upward trajectory witnessed since early March. Sustained strength back above the 136.00 mark will reaffirm the constructive outlook and allow the USD/JPY pair to aim back to test a 24-year high, around the 136.70 region touched last week. Market participants now look forward to the US macro data for a fresh trading impetus.

Tuesday's US economic docket features the release of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index later during the early North American session. This, along with the US bond yields, will influence the USD and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities ahead of Fed Chair Jerome Powell's appearance on Wednesday.

Technical levels to watch