USD/JPY rebounds modestly toward 106.00 on rising US T-bond yields

• USD/JPY is trading in a relatively tight range on Tuesday.
• Rising US Treasury bond yields help USD/JPY erase early losses.
• US Dollar Index stays in red below 92.00 ahead of US PMI data.

The USD/JPY pair gained more than 50 pips on Monday as the JPY struggled to find demand as a safe-haven. Although the broad-based selling pressure surrounding the greenback remains unabated on Tuesday, the pair didn't have a tough time rebounding from the daily low it set at 105.60. As of writing, USD/JPY was virtually unchanged on the day at 105.90.

USD selloff limits USD/JPY's upside

The risk-on market environment, as reflected by rising US Treasury bond yields, forces the JPY to remain on the back foot. At the moment, the 10-year US T-bond yield is up 2.33% on the day and the S&P 500 futures gain 0.25% to suggest that risk flows could continue to dominate the markets in the second half of the day.

Meanwhile, the US Dollar Index (DXY) stays in the negative territory below 92.00 ahead of the IHS Markit's and the ISM's Manufacturing PMI reports and caps the pair's upside for the time being. Moreover, Federal Reserve Governor Lael Brainard is scheduled to deliver a speech at 1700 GMT. 

Earlier in the day, the data from Japan showed that the Jibun Bank Manufacturing PMI in August edged higher to 47.2 from 46.6 in July but was largely ignored by market participants.

Technical levels to watch for