USD/JPY refreshes daily highs above 110.30 on higher yields, Japan inflation eyed

• USD/JPY remains on track for weekly gains on Friday.
• Higher US Treasury yields compensat for a steep fall in US dollar.
• Fed’s optimistic view, downbeat US PMI data, improved risk appetite remain vocal points.

USD/JPY took a breather on Friday after jumping more than 80-pips in the overnight session. The rise in the pair was contributed by the Fed’s cautious optimism on the timeline of tapering and subsequent rate hike. Additionally, a further move was corroborated by the ebbed contagion of China’s Everngrande default risk. At the time of writing, USD/JPY is trading at 110.30 down 0.02% for the day.

Higher US benchmark 10-year Treasury yields drives the market

The US benchmark 10-year Treasury yields posted the biggest single-day gains since March on Thursday following the FOMC policy update. The benchmark yields gained 7.6 basis points to 1.43%. In the latest policy meeting, the US Federal Reserve set the stage for an announcement of tapering in the November policy meeting, which could mean reductions of the monthly purchases of $80 billion in Treasury and $40 billion in mortgage-backed securities.    

The gains in the pair came to halt as the greenback cooled down from a one-month high and traded near 93.10 with more than 0.30% losses. Traders digested China’s property giant Evergrande’s fallout and the US central bank’s plans for reining in US stimulus.

In addition to that, disappointing US economic data washed all the earlier gains for the US dollar. The Initial Jobless Claims increases for the second straight week to the highest in four-week to 351K in the week ending September 18th whereas the IHS Markit Manufacturing Purchasing Managers Index (PMI) dropped 60.5 in September from the previous 61.1 in August and below the market consensus of 61.5. US Service PMI too fell to 54.4 in September below the market expectations of 54.0.

It is worth noting that S&P 500 Futures is trading at 4,439.00, up 1.25%. The reading suggests improved risk sentiment which exerts pressure on safer assets like the Japanese yen. As for now, traders are waiting for Japan's Inflation Rate, US Fed’s official speeches, and New Home Sales data.

USD/JPY additional levels