USD/JPY holds steady near one-week high, comfortably above mid-113.00s

• USD/JPY climbed to a one-week high on Tuesday and was supported by a combination of factors.
• The risk-on mood undermined the safe-haven JPY and extended some support to the major.
• Rising Fed rate hike bets, recovering US bond yields benefitted the USD and remained supportive.

The USD/JPY pair traded with a positive bias through the early North American session and was last seen trading around the 113.65-70 region, or a one-week high set earlier this Tuesday.

A combination of supporting factors assisted the USD/JPY pair to build on the previous day's positive move and gain some follow-through traction for the second successive day on Tuesday. Easing concerns about the economic fallout from the new Omicron variant remained supportive of the prevalent risk-on environment. This, in turn, undermined the safe-haven Japanese yen and acted as a tailwind for the major.

On the other hand, the US dollar drew some support from rising bets for a faster Fed liftoff and a further recovery in the US Treasury bond yields. In fact, the markets have been pricing in the possibility for an eventual Fed rate hike move in May 2022 amid worries about stubbornly high inflation. This provided an additional lift to the USD/JPY pair, though the uptick lacked strong bullish conviction.

The fundamental backdrop seems tilted in favour of bullish traders, though the lack of follow-through buying warrants some caution before positioning for any further appreciating move. In the absence of any major market-moving economic releases, the US bond yields would play a key role in influencing the USD price dynamics. Apart from this, the broader market risk sentiment should provide some impetus to the USD/JPY pair.

Technical levels to watch