USD/JPY pares intraday losses amid positive risk tone, keeps the red around 131.15-20 area

• USD/JPY meets with a fresh supply on Tuesday amid a modest USD weakness.
• The risk-on mood undermines the safe-haven JPY and helps limit the downside.
• The fundamental backdrop warrants some caution for aggressive bullish traders.

The USD/JPY pair comes under some renewed selling pressure on Tuesday and reverses a major part of the previous day's goodish recovery gains. Spot prices, however, manage to recover a few pips from the daily low and climb back to the 131.00 mark during the early European session.

The prevalent risk-on environment - as depicted by a generally positive tone around the equity markets - undermines the safe-haven Japanese Yen (JPY) and turns out to be a key factor lending some support to the USD/JPY pair. The takeover of Silicon Valley Bank by First Citizens Bank & Trust Company from the Federal Deposit Insurance Corporation (FDIC) helps calm market nerves about the contagion risk. Adding to this, regulators reassured that they stand ready to address any liquidity shortfalls and further boosted investors' appetite for perceived riskier assets. That said, a combination of factors warrants some caution before placing aggressive bulls bets around the major,

Expectations that the Bank of Japan (BoJ) will tweak its bond yield control policy and whittle down its massive stimulus under new Governor Kazuo Ueda could limit losses for the JPY. Apart from this, a modest US Dollar (USD) weakness might further contribute to keeping a lid on any meaningful upside for the USD/JPY pair. The Federal Reserve's signal last week that it might soon pause the rate-hiking cycle in the wake of the recent turmoil in the banking sector leads to a fresh leg down in the US Treasury bond yields. This, in turn, is seen dragging the Greenback lower for the second successive day and exerting some downward pressure on the major.

Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the USD/JPY pair's recent bounce from the 129.65 region, or the lowest level since February 03 touched last week. Market participants now look to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. Apart from this, the US bond yields might influence the USD price dynamics, which, along with the broader risk sentiment, could produce short-term trading opportunities around the major.

Technical levels to watch