Search ForexCrunch
  • A combination of factors prompted some fresh selling around USD/JPY on Monday.
  • Sliding US bond yields kept the USD bulls on the defensive and exerted some pressure.
  • The risk-off mood benefitted the safe-haven JPY and also contributed to the selling bias.
  • The Fed’s surprise hawkish shift acted as a tailwind and helped limit any further losses.

The USD/JPY pair dropped to one-week lows, around the 109.70 region during the Asian session, albeit recovered few pips thereafter. The pair was last seen trading just below the key 110.00 psychological mark, down nearly 0.20% for the day.

Following the previous session’s good two-way price moves, the USD/JPY pair met with some fresh supply on the first day of a new trading week and pressured by a combination of factors. This marked the second day of a negative move in the previous three and dragged the pair further away from two-and-half-month tops, touched in reaction to the Fed’s sudden hawkish shift.

The prevalent risk-off mood – as depicted by a generally weaker tone around the equity markets – underpinned the safe-haven Japanese yen and exerted some pressure on the USD/JPY pair. Bearish traders further took cues from the ongoing slide in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped to the lowest level since February.

On the other hand, the US dollar consolidated the post-FOMC strong gains and did little to provide any meaningful impetus to the USD/JPY pair. However, the Fed’s surprise move to bring forward its timetable for the first post-pandemic interest rate hikes continued acting as a tailwind for the USD. This, in turn, helped limit any deeper losses for the major, at least for now.

There isn’t any major market-moving economic data due for release from the US on Monday. Hence, the US bond yields will play a key role in influencing the USD price dynamics. Apart from this, traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.

Technical levels to watch