• USD / JPY struggled to preserve / capitalize on its modest intraday gains on Friday.
  • Moderate USD price action was found to be a key factor that caps the rise.
  • Signs of stability in equity markets and high US bond yields continued support.

USD / JPY held onto its modest intraday gains ahead of the European session, although it lacked follow-up and was last seen trading around the 114.00 mark.

The pair relied on the overnight rebound from one-week lows and gained some ground early in trade action on Friday. Reports that China Evergrande made funds available for a bond coupon in a trust account helped allay concerns about a credit crunch in China’s real estate sector. This, in turn, undermined the safe haven value of the Japanese Yen and acted as a tailwind for the USD / JPY pair.

On the flip side, the US dollar, so far, has struggled to capitalize on yesterday’s strong rebound from three-week lows. This was seen as a key factor that failed to give the USD / JPY a further boost and capped the initial rise near the 114.20 area. The decline, however, remains dampened in a further widening of the US-Japanese government bond yield spread.

In fact, the yield on the benchmark 10-year US government bond reached 1.683%, the highest level since May 13 on Thursday amid expectations of an anticipated tightening of government policy. Fed. Speculation was bolstered by comments from Fed Governor Christopher Waller saying the US central bank may need to act faster if inflation continues to be high until the end of the year.

Conversely, the yield on the 10-year Japanese government bond remained close to zero due to the Bank of Japan’s yield curve control policy. This warrants some caution for aggressive bearish traders and before positioning for any extension of the recent pullback from the nearly four-year highs hit earlier this week.

Market participants are now anxiously awaiting the release of US Flash PMIs for further momentum later in the first North American session. This, along with US bond yields, will influence the price dynamics in USD. Traders will take more inspiration from the broader risk sentiment in the market for certain near-term opportunities around the USD / JPY pair.

Technical levels to watch

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