USD/JPY moves away from YTD peak, eyes 136.00 mark amid notable USD supply

The USD/JPY pair comes under some selling pressure on Friday and reverses the previous day's positive move to its highest level since December 20 - just above the 137.00 mark. The intraday downfall picks up pace during the early European session and drags spot prices to a fresh daily low, around the 136.25-136.20 area in the last hour.

Retreating US Treasury bond yields trigger a modest US Dollar pullback and turn out to be a key factor dragging the USD/JPY pair lower. Apart from this, a softer risk tone benefits the safe-haven Japanese Yen (JPY) and contributes to the offered tone surrounding the major. Any meaningful corrective pullback, however, still seems elusive amid hawkish Fed expectations, which should act as a tailwind for the US bond yields and the Greenback.

In fact, the markets seem convinced that the US central bank will keep interest rates higher for longer to tame stubbornly high inflation. Moreover, a slew of FOMC members this week opened the door for a jumbo 50 bps lift-off at the March policy meeting. This lifted the yield on the benchmark 10-year US government bond to its highest level since last November and the rate-sensitive two-year Treasury note to levels last seen in July 2007 on Thursday.

In contrast, the Bank of Japan (BoJ) will stick to its dovish stance for the foreseeable future. In fact, the incoming BoJ Governor Kazuo Ueda stressed the need to maintain the ultra-loose policy to support the fragile economy and said earlier this week that the central bank isn't seeking a quick move away from a decade of massive easing. Hence, the market focus will remain glued to the upcoming BoJ monetary policy meeting, scheduled next Friday.

In the meantime, the divergent Fed-BoJ outlook should lend support to the USD/JPY pair and limit any meaningful downside, at least for the time being. Market participants now look forward to the release of the US ISM Services PMI, which, along with a scheduled speech by Dallas Fed President Lorie Logan, might influence the USD. Apart from this, the broader risk sentiment could assist traders to grab short-term opportunities on the last day of the week.

Technical levels to watch