USD/JPY flat-lined below 114.00 mark, rebounding US bond yields lend support

• The risk-off mood benefitted the safe-haven JPY and acted as a headwind for USD/JPY.
• Rebounding US bond yields underpinned the USD and helped limit any meaningful slide.
• Investors also seemed reluctant to place aggressive bets ahead of the key FOMC decision.

The USD/JPY pair bounced a few pips from the daily low and was last seen trading in the neutral territory, around the 113.85 region heading into the European session.

The pair built on the previous day's late recovery momentum from the 113.45 area, or the lowest level since December 20 and gained some positive traction during the early part of the trading on Tuesday. A goodish rebound in the US Treasury bond yields acted as a tailwind for the US dollar amid expectations for a faster policy tightening by the Fed. This, in turn, was seen as a key factor that provided a modest lift to the USD/JPY pair.

The uptick, however, lacked bullish conviction and struggled to find acceptance above the 114.00 mark amid the prevalent risk-off mood, which tends to benefit the safe-haven Japanese yen. Rising geopolitical risk over Ukraine, along with concerns that rising borrowing costs could dent the earnings outlook for companies continued weighing on investors' sentiment. This was evident from a generally weaker tone around the equity markets.

Meanwhile, the downside seems limited, at least for the time being, as investors would prefer to wait for the outcome of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision on Wednesday, which should provide fresh clues about the likely timing of when the Fed will commence its policy tightening cycle. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair.

In the meantime, traders on Tuesday will take cues from the release of the Conference Board's US Consumer Confidence Index, due later during the early North American session. This, along with the US bond yields, will drive the USD demand. Apart from this, the broader market risk sentiment could produce some short-term trading opportunities around the USD/JPY pair.

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