USD/JPY inter-markets: rising US bond yields should limit any immediate downslide

The greenback gained additional traction against the Japanese Yen on Friday, with the USD/JPY pair hitting 7-day peak near 113.85 region before retracing few pips to currently trade around mid-113.00s.

The pair shot up during NY session on Thursday after the US President Donald Trump’s pledge to unveil a “phenomenal” tax plan in coming weeks. Analysts think that lower taxes would encourage consumer spending and accelerate growth, eventually adding to inflationary pressure. The comments revived optimism surrounding Trump's pro-growth policies and triggered a fresh wave of up-surge in the US Treasury bond yields across all maturities. Surging US bond yields prompted investors to buy the US Dollar, providing a catalyst for a short-covering rally. 

In addition to this, declining Volatility Index (VIX), supporting the ongoing bullish momentum in the US equity markets, also drove flows away from the perceived safety of the Yen and lent an additional support to the pair's up-move. 

The pair, however, seems to have lost its upside momentum and struggled to rise further as market participants seemed to lighten their positions ahead of Japanese Prime Minister Shinzo Abe’s meeting with the US President Donald Trump, later on Friday.

Meanwhile, continuous up-trend in the US Treasury yields is likely to limit any sharp downslide and the pair seems unlikely to weaken back below 113.00 handle.