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  • USD/JPY edged lower for the second straight session on Wednesday amid a softer USD.
  • Retreating US bond yields turned out to one of the key factors weighing on the greenback.
  • The underlying bullish sentiment undermined the safe-haven JPY and helped limit losses.

The USD/JPY pair managed to recover a major part of its early lost ground to near one-week lows and was last seen trading with modest losses, around the 103.65-70 region.

The pair extended this week’s retracement slide from one-month tops, around the 104.40 region and witnessed some follow-through selling through the Asian session on Wednesday. The downtick was sponsored by a pullback in the US Treasury bond yields, which undermined the US dollar demand.

In fact, the yield on the benchmark 10-year US bond eased further from the highest level in almost a year in reaction to the overnight comments from Fed officials. Policymakers toned down talks of tapering the asset purchase program and reiterated that the policy is going to stay supportive.

That said, expectations of a larger government borrowing could limit the ongoing pullback in the US bond yields. Investors have been pricing in prospects for a more aggressive US fiscal spending in 2021 following the Democratic sweep in the US Senate runoff elections in the state of Georgia.

Apart from this, the underlying bullish sentiment in the financial markets undermined the safe-haven Japanese yen and extended some support to the USD/JPY pair. The rollout of COVID-19 vaccines has been fueling hopes for a strong global economic recovery and boosting investors’ confidence.

The combination of supporting factors assisted the USD/JPY pair to rebound around 20 pips from daily lows, through the uptick lacked any strong follow-through. Market participants now look forward to the release of latest US consumer inflation figures for some meaningful trading impetus.

Technical levels to watch