USD/JPY rebounds from multi-month lows, trades above 130.00

• USD/JPY staged a decisive recovery in the early European morning.
• The pair returned into the negative territory after coming in within a touching distance of 131.00.
• Falling US Treasury bond yields make it difficult for the pair to gather momentum.

USD/JPY reversed its direction and sharply rose toward 131.00 after having touched its lowest level since late May at 129.50 during the Asian trading hours. The pair, however, lost its bullish momentum and was last seen losing 0.25% on the day at 130.40.

The sudden US Dollar strength in the European morning provided a boost to the pair on Tuesday. Earlier in the day, the Japanese yen gathered strength on growing expectations of a hawkish Bank of Japan (BOJ) policy shift. Over the weekend, Nikkei reported that the BOJ was considering raising its inlation forecasts for 2023 and 2024 in January.

Meanwhile, the benchmark 10-year US Treasury bond yield is down more than 2% on a daily basis slightly below 3.75%, making it difficult for the pair to preserve its bullish momentum.

Nevertheless, the US Dollar Index is still up 1% on the day despite the positive shift witnessed in risk sentiment.

With trading conditions normalizing following the New Year holiday, the market action remains irregular early Tuesday. US stock index futures are up more than 1%.

USD/JPY technical levels to consider