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  • The risk-on mood undermined the safe-haven JPY and assisted USD/JPY to grain some traction.
  • Sliding US bond yields kept the USD bulls on the defensive and capped the upside for the pair.

The USD/JPY pair refreshed daily tops in the last hour, albeit lacked any follow-through and was last seen trading with modest gains, around the 104.70 region.

The pair gained some positive traction during the early part of the European session and finally broke out of its intraday consolidative trading range. The uptick pushed the USD/JPY pair away from monthly lows set on Wednesday and was sponsored by the prevalent risk-on mood, which tends to undermine the safe-haven Japanese yen.

The global risk sentiment remained well supported by optimism over the progress in the rollout of vaccines for the highly contagious coronavirus disease. This, along with the US President Joe Biden’s proposed $1.9 trillion stimulus package, has been fueling hopes for a strong economic recovery and continued boosting investors’ confidence.

Meanwhile, the supporting factor, to a larger extent, was offset by a subdued US dollar price action and the ongoing US Treasury bond yields. In fact, the USD remained depressed near two-week lows and was weighed down by Wednesday’s weaker US consumer inflation figures/dovish comments by the Fed Chair Jerome Powell.

This, in turn, held bullish traders from placing aggressive bets and kept a lid on any meaningful upside for the USD/JPY pair, at least for the time being. Hence, it will be prudent to wait for some follow-through buying beyond the overnight swing highs, around the 104.85 region, before positioning for any further gains.

Market participants now look forward to the US economic docket, highlighting the release of the usual Initial Weekly Jobless Claims for fresh impetus. Apart from this, the broader market risk sentiment, the US bond yields and the USD price dynamics might also produce some short-term trading opportunities around the USD/JPY pair.

Technical levels to watch