The USD/JPY gained ground on Tuesday, albeit it failed to gain traction over the 115.00 barrier. The widening yield differential between the United States and Japan remains a tailwind for the major.
The relatively secure Japanese Yen benefited from a milder risk tone, which helped to keep any additional advances for the pair under control.
An Overview Of The Technical Aspects
USD/JPY CHART Source: Tradingview.com
Despite a little pullback from the day’s high, the USD/JPY pair kept its bullish stance going into the European session, trading slightly below the 115.00 level at the time of writing.
An Overview Of The Fundamentals
After hitting a multi-week bottom in the mid-113.00s on Friday in response to disappointing US retail sales data, the pair recovered momentum for the second consecutive day on Tuesday, consolidating their gains.
A further widening of the yield differential between the US and Japanese government bonds was viewed as a critical factor contributing to the USD/JPY pair’s strength.
In reality, the yield on the standard 10-year US government bond rose to its highest point since January 2022, indicating that investors are increasingly confident that the Federal Reserve will begin hiking interest rates in March 2022 as expected.
The yield on the 10-year Japanese government bond, on the other hand, has stayed close to zero as a result of the Bank of Japan’s yield curve management program.
Conversely, a steady rise in the rates on US government bonds supported the US Dollar, giving the USD/JPY pair a further boost in value.
However, a prolonged sell-off in the US financial markets in recent months has dampened investors’ desire for riskier assets. As a result, the relatively secure Japanese Yen gained strength, and the rising potential of the main currency was limited.
The Bank of Japan’s (BoJ) decision to hold interest rates unchanged at -0.10% after its policy meeting on Tuesday appeared to have had little impact on intraday activity in the market.
In a news conference following the meeting, Bank of Japan Governor Haruhiko Kuroda underlined that the central bank will loosen policy further without hesitation if and when it is required.
The fundamental environment is favorable for optimistic traders and provides support for the potential for further increases.
On the other hand, bulls are likely to wait for prolonged strength above the critical 115.00 psychological level before preparing for a further appreciating rise in the short term.
Traders are now looking forward to the release of the Empire State Manufacturing Index, which will provide further momentum.