It is all about dollar sentiment mostly but the key driver behind price action in USD/JPY has largely been Treasury yields, as seen here. While the break higher above 4% in 10-year Treasury yields is notable, there isn't quite such a major technical break yet in USD/JPY. The pair is still caught among key levels as seen on the daily chart below:
There is a confluence of resistance of sorts in the form of the:
- 100-day moving average (red line) at 136.62
- 38.2 Fib retracement level of the swing lower since October at 136.66
- 200-day moving average (blue line) at 137.30
That pretty much sets the stage for the pair now, as buyers are poking and prodding to test for a break higher.
And as much as they might need help from a stronger dollar, that will largely depend on how things develop in the bond market.
For now, it looks like market players are slowly coming around to the idea that the Fed may keep rates on the higher side but in all fairness, the "6% trade" still has legs to run if the appetite grows further. That is something to be wary about as we continue to navigate through a minefield of data before the Fed meeting later in the month.