USD/JPY remains on the defensive around mid-113.00s, moves little post-BoJ's Kuroda

• USD/JPY edged lower for the second successive day and retreated further from the monthly high.
• The prevalent risk-off mood underpinned the safe-haven JPY and exerted pressure on the major.
• Sliding US bond yields kept the USD bulls on the defensive and added to the modest selling bias.

The USD/JPY pair remained on the defensive heading into the European session and was last seen trading near a three-day low, around mid-113.00s.

Having struggled to find bullish acceptance above the 114.00 mark, the USD/JPY pair witnessed some selling on Thursday and reversed the previous day's post-FOMC move up to the monthly top. A softer risk tone benefitted the safe-haven Japanese yen and exerted some pressure on the pair for the second successive day on Friday.

Investors remain worried about the economic risks stemming from the rapid spread of the Omicron coronavirus variant and the imposition of fresh restrictions in Europe and Asia. This was evident from a weaker trading sentiment across the global equity markets, which forced investors to take refuge in traditional safe-haven assets.

The flight to safety was reinforced by a further decline in the US Treasury bond yields, which kept the US dollar bulls on the defensive. This was seen as another factor behind the offered tone surrounding the USD/JPY pair. The intraday downtick seemed rather unaffected by the announcement of the Bank of Japan (BoJ) policy decision.

The BoJ left its monetary policy settings unchanged at the end of the December meeting but decided to scale back pandemic stimulus upon reaching March 2022 deadline. That said, the decision to dial back emergency pandemic funding was already priced in the markets and hence, did little to provide any meaningful impetus to the USD/JPY pair.

In the post-meeting press conference, the BoJ Governor Haruhiko Kuroda reiterated that the central bank remains ready to ease monetary policy further without any hesitation as needed. Kuroda further added that uncertainty is high on the impact of the spread of the Omicron variant and that there is a need to watch risk around bottlenecks.

Moving ahead, there isn't any major market-moving economic data due for release from the US, leaving the USD/JPY pair at the mercy of the broader market risk sentiment. Apart from this, the US bond yields might influence the USD price dynamics and produce some short-term trading opportunities on the last day of the week.

Technical levels to watch