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  • USD/JPY fell to its lowest level in more than 10 days.
  • US Dollar Index extends its daily rally above 92.00.
  • 10-year US T-bond yield is down more than 2% for the second straight day.

The USD/JPY pair dropped to its lowest level in 12 days at 108.40 during the European trading hours but managed to stage a rebound in the second half of the day. As of writing, the pair was posting small daily losses at 108.73.

USD strength offsets JPY’s safe-haven gains

Earlier in the day, the risk-averse market environment and the sharp decline witnessed in the US Treasury bond yields weighed on USD/JPY. The rising number of coronavirus cases globally triggered a new wave of flight to safety and provided a boost to the JPY while the benchmark 10-year US T-bond yield dropped as much as 3% on a daily basis.

During the American trading hours, the renewed USD strength, however, helped USD/JPY erase its losses. After breaking above 92.00, the US Dollar Index (DXY) preserved its bullish momentum and touched its highest level in two weeks at 92.31. Currently, the DXY is up 0.6% on the day at 92.30.

In an interview with CNBC on Tuesday, Dallas Federal Reserve President Robert Kaplan said that his forecast for removing policy accommodation was more aggressive than the median Fed view. Kaplan further noted that he expects the Fed to start raising interest rates in 2022. These hawkish comments allowed the USD to gain traction in the American session.

Meanwhile, the data from the US showed that New Home Sales in February declined by 18.2% in February, compared to analysts’ estimate for a fall of 6.5%.

On Wednesday, the Bank of Japan (BoJ) will release its Monetary Policy Meetings. Last week, the BoJ announced that it expanded the Japanese government bond yield target under the yield curve control framework.

Technical levels to watch for