USD/JPY consolidates recent gains to multi-year peak, below 115.00 mark

• USD/JPY was seen consolidating its recent gains to the highest level since March 2017.
• The cautious market mood benefitted the safe-haven JPY and acted as a headwind.
• Hawkish Fed expectations, elevated US bond yields continued lending some support.

The USD/JPY pair extended its sideways price move through the first half of the European session and remained confined in a range below the key 115.00 psychological mark.

The pair struggled to capitalize on its modest intraday uptick to a four-and-half-year peak and now seems to have entered a bullish consolidation phase. A softer tone around the equity markets benefitted the Japanese yen's safe-haven status, which, in turn, was seen as a key factor that acted as a headwind for the USD/JPY pair.

On the other hand, the US dollar witnessed some profit-taking from a 16-month high touched earlier this Wednesday. This was seen as another factor that kept a lid on any meaningful upside for the USD/JPY pair. However, the downside remains cushioned amid the recent widening of the US-Japanese government bond yield differential.

The markets have been pricing in the possibility for an early Fed rate hike amid worries about rising inflation. The speculations pushed the yield on the benchmark 10-year US bond back closer to the 1.65% threshold. Conversely, the yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan's yield curve control policy.

The fundamental backdrop seems tilted in favour of bullish traders, though it will be prudent to wait for a sustained strength beyond the 115.00 mark before positioning for any further gains. Market participants now look forward to the US housing market data – Building Permits and Housing Starts – due later during the early North American session.

This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch