USD/JPY rallies to fresh multi-day high, poised to gain further amid broad-based USD strength

• A combination of supporting factors pushed USD/JPY higher for the second successive day.
• The risk-on impulse, the Fed-BoJ policy divergence, rising US bond yields extended support.
• Resurgent USD demand provided an additional lift, taking along stops near the 136.00 mark.

The USD/JPY pair built on its steady intraday ascent through the early North American session and shot to a fresh three-day high, around the 136.30 region in the last hour.

The markets turned optimistic amid hopes that inflation is nearing its peak, bolstered by the recent decline in commodity prices. Furthermore, China announced to relax COVID-19 quarantine requirements for international travellers and raised expectations for a revival in global growth. This, in turn, boosted investors' confidence and undermined the safe-haven Japanese yen.

The risk-on flow pushed the US Treasury bond yields higher, widening the gap between the US-Japanese bond yields. This, along with the divergent monetary policy stance adopted by the Bank of Japan and the Federal Reserve, weighed heavily on the JPY. Apart from this, a strong pickup in the US dollar demand also contributed to the strong bid tone surrounding the USD/JPY pair.

The intraday bullish momentum, also marking the third successive day of a positive move, could further be attributed to some technical buying above the 136.00 round-figure mark. This, in turn, might have already set the stage for an extension of the upward trajectory, back towards retesting a 24-year high, around the 136.70 region touched last week.

Moving ahead, the market focus now shifts to Fed Chair Jerome Powell's appearance on Wednesday. Market participants will look for clues about the US central bank's policy tightening path. This will play a key role in influencing the near-term USD price dynamics and help investors to determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch