USD/JPY steadily climbs back to 109.35 region amid a modest USD strength

A goodish pickup in the USD demand assisted USD/JPY to regain positive traction on Tuesday.
Dovish Fed expectations might hold the USD bulls from placing aggressive bets and cap gains.
The USD/JPY pair edged higher through the first half of the trading action on Tuesday and climbed to fresh daily tops, around the 109.30-35 region heading into the European session.

Following the previous day’s pullback of around 80 pips from three-week tops, the pair managed to regain positive traction and was supported by a goodish pickup in the US dollar demand. Speculations that positive US economic data may force the Fed to raise interest rates sooner rather than later and forced investors to lighten their bearish USD bets.
The momentum was further sponsored by an extended selloff in the Japanese yen amid worries that the recent surge in COVID-19 cases could hinder Japan’s fragile economic recovery. Apart from this, the BoJ’s forecast that inflation will not reach the 2% target through early 2023 further acted as a headwind for the safe-haven JPY and remained supportive.

That said, a combination of factors might hold bulls from placing aggressive bets. A generally softer tone around the US equity futures could extend some support to the safe-haven Japanese yen. This, along with the Fed’s stubbornly dovish outlook might further contribute towards keeping a lid on any runaway rally for the USD/JPY pair, at least for now.

Tuesday’s US economic docket features the second-tier releases of Trade Balance figures and Factory Orders data. Investors might also prefer to wait on the sidelines ahead of Friday’s release of the US monthly jobs report (NFP), making it prudent to wait for some follow-through buying before positioning for any further appreciating move.