USD/JPY sticks to gains near 115.65-70 amid improving risk sentiment, rising bond yields

• USD/JPY gained strong positive traction for the second successive day on Tuesday.
• A turnaround in the risk sentiment extended support amid rising US bond yields.
• Modest USD pullback did little to hinder the positive move to the multi-day high.

The USD/JPY pair held on to its strong intraday gains through the mid-European session and was last seen trading near the multi-day high, around the 115.65-115.70 region.

A combination of supporting factors assisted the USD/JPY pair to build on the previous day's strong move up and gain some follow-through traction for the second successive day on Tuesday. A goodish recovery in the risk sentiment undermined the safe-haven Japanese yen and acted as a tailwind for the major. Bulls further took cues from a fresh leg up in the US Treasury bond yields and seemed rather unaffected by modest US dollar pullback from the highest level since May 2020.

Reports indicated that the European Union (EU) is set to outline a plan to jointly issue bonds on a potentially massive scale to finance energy and defence spending in order to cope with the fallout from the Russia-Ukraine war. This led to a solid rebound in the global equity markets and drove flows away from traditional safe-haven assets. That said, the worsening situation in Ukraine should keep a lid on the optimistic market moves and warrant some caution for aggressive traders.

The recent monster gains in commodity prices that followed Russia's invasion of Ukraine has fueled fears of a major inflationary shock for the global economy, increasing the risk of stagflation. This, in turn, pushed the US bond yields higher. Apart from this, a further escalation of the Russia-Ukraine conflict should benefit the greenback's status as the global reserve currency and supports prospects for a further near-term appreciating move for the USD/JPY pair.

Some follow-through buying beyond the 115.80 horizontal resistance would reaffirm the constructive outlook and push spot prices further beyond the 116.00 round-figure mark. The momentum could get extended and allow bullish traders to aim back to retest the 116.30-116.35 supply zone, or the YTD high touched on January 4 and February 14. In the absence of any major market-moving economic releases, the focus will remain on developments surrounding the Russia-Ukraine saga.

Technical levels to watch