USD/JPY bounces in Asia, looks to test 107.00

After a brief consolidative stint in early Asia, USD/JPY has regained poise, now heading back towards the seven-month highs of 106.96 reached Tuesday.

The steady recovery in the spot could be attributed to the upbeat market mood, as reflected by the gains in the Asian equities and the S&P 500 futures.

 US President Joe Biden talking up the covid vaccine progress and retreating global yields lifted the appetite for riskier assets at the expense of the safe-haven yen.

Further, the Japanese currency also remains hurt by the deepening contraction in the country’s services sector, in the wake of the covid-induced state of emergency across the nation.

The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) came in at a seasonally adjusted 46.3, staying below the 50 level that separates contraction from expansion for the 13th month.

Usamah Bhatti, an economist at IHS Markit, which compiles the survey, said: “That showed demand remained in a fragile condition as the impact of the pandemic dragged on.”

However, the further upside in USD/JPY remains at the mercy of the US dollar dynamics, as investors look forward to the US ADP jobs, ISM Services PMI and Fed’s Beige Book for fresh cues.

The safe-haven US dollar remains on the defensive so far this Wednesday, weighed down by the continued to retreat in the Treasury yields, which have calmed the unnerved markets.

Meanwhile, the yen market paid a little heed to the comments from the Bank of Japan (BOJ) board member, Goushi Kataoka - the persistent dissenter, as he called on the central bank to lowering both short and long-term policy interest rates via active purchases of Japanese government bonds (JGBS).

USD/JPY: Technical levels

The bulls now look to challenge the multi-month highs at 106.96, in a bid to retest the 107.50 level. To the downside, immediate support is seen at 106.61 (5-DMA), below which the 10-DMA cap at 106.03 could be probed.

USD/JPY: Additional levels