• USD/JPY added to the previous day’s gains and edged higher for the second straight day.
• Improving global risk sentiment undermined the safe-haven JPY and remained supportive.
• Retreating US bond yields capped gains for the USD and the pair ahead of the NFP report.

The USD/JPY pair maintained its bid tone heading into the North American session and was last seen trading just a few pips below the daily high, around the 113.35-40 region.

The pair gained some positive traction for the second successive day on Friday and built on the overnight bounce from the vicinity of mid-112.00s, or the lowest level since October 11. A generally positive tone around the equity markets undermined the safe-haven Japanese yen and was seen as a key factor that acted as a tailwind for the USD/JPY pair.

The global risk sentiment stabilized a bit on the back of easing fears about the potential economic fallout from the recently discovered, possibly vaccine-resistant Omicron variant of the coronavirus. Adding to this, the passage of a bill to fund the US government through mid-February further contributed to the upbeat market mood on Friday.

On the other hand, the US dollar drew some support from firming expectations that the Fed will adopt a more aggressive policy response to contain stubbornly high inflation. However, retreating US Treasury bond yields held back the USD bulls from placing aggressive bets and kept a lid on any further gains for the USD/JPY pair, at least for the time being.

Investors also seemed reluctant and preferred to wait for a fresh catalyst from Friday's release of the closely-watched US monthly employment details. The popularly known NFP report will play a key role in influencing the USD price dynamics. Apart from this, the US ISM Services PMI will also be looked upon for some meaningful trading opportunities around the USD/JPY pair.

Technical levels to watch