• The risk-on mood weighed on the safe-haven JPY and assisted USD/JPY to gain some positive traction.
  • Dovish Fed expectations, sliding US bond yields kept the USD bulls on the defensive and capped gains.

The USD/JPY pair traded with a mild positive bias heading into the European session, albeit lacked follow-through buying and remained below mid-109.00s.

Following the previous day’s dramatic turnaround from weekly tops, the pair managed to regain some positive traction on the last trading day of the week. The uptick was supported by the underlying bullish sentiment in the financial markets, which tends to undermine demand for the safe-haven Japanese yen. That said, a combination of factors kept a lid on any meaningful upside for the USD/JPY pair.

Despite Thursday’s hotter-than-expected US CPI print, investors seem aligned with the Fed’s narrative that any spike in inflation is likely to be transitory. This means that the Fed will retain its ultra-lose policy stance for a longer period. Apart from this, a further decline in the US Treasury bond yields undermined the US dollar and held bulls from placing any fresh bets around the USD/JPY pair.

Hence, the market focus will now shift to the upcoming FOMC monetary policy meeting on June 15-16. In the meantime, the US bond yields will continue to play a key role in influencing the USD price dynamics. Traders will further take cues from the broader market risk sentiment and the release of the Preliminary Michigan US Consumer Sentiment index, due later during the early North American session, for some short-term opportunities.

Technical levels to watch