• USD/JPY attracted some dip-buying on Tuesday, though the uptick lacked follow-through.
• The widening US-Japanese bond yield differential continued acting as a tailwind for the pair.
• The Ukraine crisis extended support to the safe-haven JPY and capped any meaningful gains.

The USD/JPY pair extended its sideways consolidative price move and remained confined in a range around the 122.80 region through the early North American session.

Following an intraday dip to the 122.35 area, the USD/JPY pair attracted some buying on Tuesday, though struggled to capitalize on the move or make it through the 123.00 round-figure mark. The widening of the US-Japanese government bond yield turned out to be a key factor that acted as a tailwind for spot prices. That said, the uncertainty over Ukraine drove some haven flows towards the Japanese yen and kept a lid on any meaningful gains for the major.

The Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid. Conversely, expectations that the Fed will tighten its monetary policy at a faster pace remained supportive of elevated US Treasury bond yields. This, to a larger extent, helped offset a softer tone surrounding the US dollar and continued lending support to the USD/JPY pair.

The upside, however, remained capped amid fading hopes of diplomacy in Ukraine. Investors remain worried about the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine. This was evident from the prevalent cautious mood around the equity markets, which benefitted traditional safe-haven assets, including the JPY. Investors also seemed reluctant to place aggressive bets ahead of the FOMC minutes, due for release on Wednesday.

It is worth recalling that the markets expect the Fed to hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. Hence, the minutes will be looked upon for fresh clues about the Fed's policy outlook, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, developments surrounding the Russia-Ukraine saga would allow traders to grab some short-term opportunities.

Technical levels to watch