- USD/JPY caught some fresh bids on Tuesday and prolonged its one-week-old uptrend.
- Prospects for early tapering by the Fed underpinned the USD and remained supportive.
- A softer risk tone did little to benefit the safe-haven JPY or hinder the ongoing move up.
The USD/JPY pair shot to fresh two-week tops during the first half of the European session, with bulls now eyeing a sustained move beyond the 110.60 supply zone.
Having defended the key 110.00 psychological mark on Monday, the USD/JPY pair caught some fresh bids on Tuesday and built on its recent strong rebound from the 108.70 region, or the lowest level since late May. This marked the fourth day of a positive move in the previous five and was sponsored by sustained US dollar buying interest.
Investors have been pricing in the prospects for an early tapering of the Fed's massive monetary stimulus amid signs of substantial further progress in the labor market recovery. The Fed officials have also started to guide the market towards early tapering, which, in turn, was seen as a key factor that acted as a tailwind for the USD.
In fact, the US Bureau of Labor Statistics reported on Monday that the number of job openings increased by 590,000 to a record-high 10.1 million on the last business day of June. This comes on the back of Friday's blockbuster NFP report, which forced investors to bring forward the likely timing for policy tightening by the Fed.
Meanwhile, Atlanta Fed President Raphael Bostic said on Monday that the Fed could begin tapering between October and December, or earlier if there is another month or two of strong job gains. Adding to this, Boston Fed President Eric Rosengren noted that the US central bank should announce in September that it will start reducing its $120 billion in monthly purchases of Treasury and mortgage bonds this fall.
The repricing of the Fed's tapering plan pushed the yield on the benchmark 10-year US government bond to three-week highs, further beyond 1.31% on Tuesday, which further underpinned the greenback. The supporting factors, to a larger extent, helped offset a generally softer risk tone, which tends to benefit the safe-haven Japanese yen.
Worries that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery weighed on investors' sentiment. This was evident from a weaker trading sentiment around the equity markets, though did little to hinder the USD/JPY pair's ongoing positive move to the highest level since July 26.
There isn't any major market-moving economic data due for release from the US. Hence, the US bond yields could play a key role in influencing the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.