• USD/JPY regained positive traction on Thursday and reversed a part of the overnight slide.
• A positive risk tone, BoJ’s move to check the risk in yields weighed on the safe-haven JPY.
• An uptick in the US bond yields, modest pickup in the USD demand remained supportive.
• Investors now look forward to Fed Chair Powell’s speech for some trading opportunities.

The USD/JPY pair trimmed a part of its intraday gains and was seen trading near the 128.00 mark during the early European session, up around 0.15% for the day.

Following the previous day's sharp pullback from the 20-year peak, the USD/JPY pair attracted fresh buying on Thursday and was supported by a combination of factors. A generally positive tone around equity markets undermined the safe-haven Japanese yen, which was further weighed down by the Bank of Japan's intervention to check the rise in Japanese 10-year yields. In fact, the BoJ offered to buy unlimited amounts of Japanese government bonds for the second straight day to defend the 0.25% yield cap.

Bullish traders further took cues from a goodish rebound in the US Treasury bond yields, bolstered by hawkish Fed expectations. The markets seem convinced that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation and have been pricing in multiple 50 bps rate hikes. This, in turn, helped revive the US dollar demand, which was seen as another factor that acted as a tailwind for the USD/JPY pair. That said, speculation that officials would respond to the yen's recent slump capped the upside.

In fact, Japanese Finance Minister Shunichi Suzuki made the most explicit warning yet on Tuesday that the damage to the economy from a weakening yen at present is greater than the benefits from it. Suzuki is due to meet US Treasury Secretary Janet Yellen this week, which held back traders from placing fresh bullish bets, at least for the time being. This, in turn, kept a lid on any meaningful gains for the USD/JPY pair and led to an intraday pullback of over 50 pips from the daily swing high, around the 128.60 region.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims later. The focus, however, will remain glued to Fed Chair Jerome Powell's speech at an International Monetary Fund event later during the US session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for short-term opportunities around the USD/JPY pair.

Technical levels to watch