USD/JPY climbs to one-week high, around 113.70 level amid risk-on mood

The USD/JPY pair edged higher through the Asian session and climbed to a one-week high, around the 113.70 region in the last hour.

The pair built on the previous day's positive move and gained some follow-through traction for the second successive day on Tuesday. The prevalent upbeat market mood undermined the safe-haven Japanese yen, which, in turn, was seen as a key factor that provided a modest lift to the USD/JPY pair.

The global risk sentiment stabilized amid reports that Omicron patients had only shown mild symptoms. This helped ease fears about the economic fallout from the new variant of the coronavirus and boosted investors' confidence, which was evident from a positive tone around the equity markets.

Bulls further took cues from a further recovery in the US Treasury bond yields, though a subdued US dollar price action might keep a lid on any further gains for the USD/JPY pair. The fundamental backdrop, however, favours bulls and supports prospects for a further near-term appreciating move.

Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the markets have been pricing in the possibility of an eventual rate hike by May 2022, which should continue to act as a tailwind for the greenback.

There isn't any major market-moving economic data due for release from the US, leaving the USD/JPY pair at the mercy of the broader market risk sentiment. Apart from this, the US bond yields will influence the USD price dynamics and produce some meaningful trading opportunities around the major.

Technical levels to watch