- USD/JPY prolonged its recent strong positive move amid sustained USD buying interest.
- Expectations for an earlier Fed taper, rallying US bond yields underpinned the greenback.
- COVID-19 woes might benefit the safe-haven JPY and cap gains ahead of the US CPI print.
The USD/JPY pair built on its steady intraday ascent and climbed to over one-month tops, around the 110.75-80 region during the early European session.
Having defended the 110.00 psychological mark earlier this week, the USD/JPY pair regained positive traction and prolonged its recent strong move up from the 108.70 area, or lowest level since late May. The pair scaled higher for the second consecutive session on Wednesday – also marking the fifth day of a positive move in the previous six – and was supported by sustained US dollar buying interest.
Investors have been pricing in the prospects for an early tapering of the Fed's massive pandemic-era stimulus amid signs of substantial further progress in the labour market recovery. The Fed officials have also started to guide the market towards early tapering and higher interest rates as soon as 2022. This was evident from an extension of the recent move up in the US Treasury bond yields.
In fact, the yield on the benchmark 10-year US government bond jumped to the highest level since July 14, closer to the 1.37% threshold, which, in turn, continued acting as a tailwind for the greenback. With the latest leg up, the USD/JPY pair has now cleared an important barrier near the 110.60-70 supply zone, which might have already set the stage for a further near-term appreciating move.
Meanwhile, worries about the economic fallout from the fast-spreading Delta variant of the coronavirus seems to have overshadowed the optimism led by the passage of a $1 trillion US infrastructure bill. This was evident from the prevalent cautious mood around the equity markets, which might underpin the safe-haven Japanese yen and cap any meaningful upside for the USD/JPY pair, at least for now.
Moving ahead, the focus now shifts to the release of the latest US consumer inflation figures later during the early North American session. The data will influence market expectations about the next policy move by the Fed and drive the greenback. Apart from this, developments surrounding the coronavirus saga will play a key role in determining the near-term trajectory for the USD/JPY pair.