USD/JPY consolidates in a range near one-month tops, just above mid-109.00s

The USD/JPY pair lacked any firm directional bias and seesawed between tepid gains/minor losses heading into the European session. The pair was last seen hovering in the neutral territory, around the 109.60 region, just below one-month tops touched earlier this Thursday.

A combination of diverging forces failed to assist the pair to capitalize on the previous day's strong rally of around 115 pips, sparked by a red-hot US inflation report. In fact, the headline US CPI recorded the fastest rise since September 2008 and accelerated to a 4.2% YoY rate in April. The data fueled speculations about an earlier than anticipated tightening by the Federal Reserve and prompted some short-covering around the US dollar.

However, a pullback in the US Treasury bond yields held the USD bulls from placing aggressive bets and kept a lid on any runaway rally for the USD/JPY pair. Apart from this, a pullback in the US equity futures extended some support to the safe-haven Japanese yen and further collaborated to cap gains for the major. That said, the downside remains cushioned amid concerns that the recent surge in COVID-19 cases could hinder Japan's fragile economic recovery.

Apart from this, dovish comments by the Bank of Japan Governor Haruhiko Kuroda further acted as a headwind for the JPY and extended some support to the USD/JPY pair. In his scheduled speech before the Japanese parliament, Kuroda noted that the BoJ's risky asset buying is a part of its ultra-loose policy and a necessary step to achieve the 2% inflation target.

Kuroda further added that cutting BoJ's short/long-term policy rates remains an option if it were to ease further. This, in turn, supports prospects for additional near-term gains for the USD/JPY pair. That said, the lack of any strong follow-through buying warrants some caution for bullish traders and positioning for any further appreciating move.

Market participants now look forward to the US economic docket – highlighting the release of the usual Initial Weekly Jobless Claims and Producer Price Index (PPI) – for some impetus. This, along with the US bond yields, will influence the USD. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch