- Sliding US bond yields kept the USD bulls on the defensive and exerted some pressure on USD/JPY.
- The prevalent risk-on environment might undermine the safe-haven JPY and limit any further losses.
The USD/JPY pair remained depressed heading into the European session and was last seen hovering near the lower end of its daily trading range, around the 108.75-70 region.
A combination of factors failed to assist the pair to capitalize on Friday's bounce from the 108.60-55 support area, instead prompted some fresh selling on the first day of a new trading week. Despite signs of a pickup in the US inflation and hawkish Fed expectations, the USD, so far, has struggled to register any meaningful recovery and languished near multi-month lows. This, in turn, was seen as a key factor exerting some pressure on the USD/JPY pair.
Investors increased their bets that the Fed could taper its emergency stimulus measures sooner rather than later after Friday's encouraging US data. The IHS Markit reported that the business activity in the US private sector expanded at a record-setting pace in May and also indicated that price pressures continued to increase sharply. In fact, both the Manufacturing PMI and the Services PMI reached new series highs at 61.5 and 70.1, respectively.
The supporting factor, to a larger extent, was offset by declining US Treasury bond yields, which kept the USD bulls on the defensive and dragged the USD/JPY pair lower. That said, the underlying bullish sentiment in the global financial markets undermined demand for the safe-haven Japanese yen and might help limit any further losses. This warrants some caution before positioning for any further decline amid absent relevant market moving economic releases.