USD / JPY bounces above 116.00, a new five-year high amid rising US bond yields
- A combination of supporting factors pushed USD / JPY to a new five-year high on Tuesday.
- The risk-oriented mood continued to undermine the safe haven JPY and remained favorable.
- The surge in US bond yields benefited the USD and gave the pair a further boost.
USD / JPY added to its strong intraday gains and surged to a new five-year high, around the 116.35 region ahead of the North American session.
Despite the rise in Omicron-induced COVID-19 infections around the world, investors remain optimistic in hopes of a steady economic recovery. This was evident from an extension of the bullish trend in equity markets to record highs, which continued to support the safe haven Japanese Yen and acted as a tailwind for the USD / JPY pair.
The bulls also took inspiration from the surge in US Treasury bond yields, which pushed the US dollar to a nearly two-week high on Tuesday and gave the USD / JPY a further boost. In fact, the benchmark 10-year US government bond yield reached 1.666%, the highest level since November 24 amid hawkish Fed expectations.
Money markets anticipated the possibility of a possible Fed take-off by May and two more rate hikes by the end of 2022. This was further reinforced by the fact that US 2-year bonds, which are sensitive to rate hike expectations along with 5-year notes, hit their highest level since February 2020.
The combination of factors helped USD / JPY extend its recent upward trajectory seen over the past month or so and surpass the 2021 high, around the mid-115.00s. The strength that followed resulted in a few short term trading stops near the 116.00 mark and contributed to the strong bullish momentum underway.
Market players are now eagerly awaiting the US economic record, highlighting the release of ISM Manufacturing PMI and JOLTS Job Openings data. Other than that, US bond yields should influence the USD. Traders will take more inspiration from the broader risk sentiment in the market for some near-term opportunities around the USD / JPY pair.