USD/JPY retakes 137.00 mark amid modest USD strength, rising US bond yields

• USD/JPY steadily climbs back above the 137.00 mark during the early North American session.
• Renewed USD buying, a fresh leg up in the US bond yields remain supportive of the move up.
• Recession fears could offer support to the safe-haven JPY and keep a lid on any further gains.

The USD/JPY pair attracts some dip-buying near the 136.20-136.15 region on Wednesday and climbs to a fresh daily high during the early North American session. Spot prices, however, seem to struggle to capitalize on the move beyond the 137.00 round-figure mark.

The US dollar regains positive traction and moves back closer to a two-decade high touched the previous day. This turns out to be a key factor lending some support to the USD/JPY pair. The USD drew support from the overnight hawkish remarks by Minneapolis Fed President Neel Kashkari, which revived bets a further policy tightening by the US central bank.

The USD bulls further took cues from mostly upbeat US Durable Goods Orders. In fact, the US Census Bureau reported that headline orders remain flat MoM in July against the 0.6% rise anticipated. The disappointment, however, was offset by an upward revision of the previous month's reading and a slightly better-than-expected growth in orders excluding transportation items.

Nevertheless, the data reaffirms expectations that the Fed would raise interest rates further and the current market pricing points to equal chances of a 50 bps or a 75 bps hike in September. This marks a big divergence in comparison to a more dovish monetary policy stance adopted by the Bank of Japan, which continues to exert some pressure on the Japanese yen.

Meanwhile, hawkish Fed expectations lift the US Treasury bond yields to a nearly two-month high, widening the US-Japan rate differential and further weighing on the JPY. That said, the prevalent cautious market mood, amid growing worries about a global economic downturn, offers some support to the safe-haven JPY and could cap the upside for the USD/JPY pair.

The fundamental backdrop, however, remains tilted firmly in favour of bullish traders and supports prospects for a further near-term appreciating move. That said, market participants might refrain from placing aggressive bets and prefer to wait for a more hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday.

Technical levels to watch