USD/JPY hits fresh multi-year top, eyes 122.00 mark amid rising US bond yields

• USD/JPY continued scaling higher on Thursday and shot the highest level since December 2015.
• The divergent Fed-BoJ monetary policy outlooks weighed on the JPY amid a positive risk tone.
• Elevated US bond yields underpinned the USD and remained supportive of the strong move up.

The USD/JPY pair maintained its strong bid tone through the early North American session and climbed to a fresh multi-year top, closer to the 122.00 round-figure mark in the last hour.

A combination of supporting factors assisted the USD/JPY pair to build on this week's breakout momentum through the 120.00 psychological mark and scale higher for the fifth successive day on Thursday. A generally positive risk tone undermined the safe-haven Japanese yen, which was further weighed down by the divergence between the Bank of Japan and the Fed monetary policy outlooks.

In fact, a slew of influential FOMC members, including Fed Chair Jerome Powell, raised the possibility of a 50 bps rate hike at the upcoming policy meeting in May. This, along with concerns that surging crude oil prices would put upward pressure on the already high inflation, pushed the yield on the benchmark 10-year US government bond back closer to the highest level since 2019.

Conversely, the Japanese 10-year bond yield remained anchored below the BoJ's 0.25% ceiling amid the ultra-loose policy stance adopted by the Japanese central bank. This, in turn, resulted in the further widening of the US-Japanese bond yield spread, which was seen as another factor that drove flows away from the Japanese yen and contributed to the USD/JPY pair's strong bullish trajectory.

The relentless rally witnessed over the past three weeks or so, which sums up to gains of nearly 700 pips, lifted spot prices to levels not seen since December 2015. It, however, remains to be seen if bulls are able to retain their dominant position or opt to take some profits off the table amid extremely overbought conditions on short-term charts.

On the economic data front, the US Durable Goods Orders fell short of market expectations, though the disappointment was offset by a larger than anticipated fall in the Weekly Initial Jobless Claims. Given that the focus remains glued to fresh developments surrounding the Russia-Ukrain saga, the mixed releases did little to provide any meaningful impetus to the USD/JPY pair.

Technical levels to watch