USD/JPY climbs back closer to 110.00 mark, fresh session tops

• USD/JPY gained follow-through traction for the second consecutive session on Monday.
• A positive risk tone, the worsening COVID-19 situation in Japanese weighed on the JPY.
• An uptick in the US bond yields remained supportive, though weaker USD capped gains.

The USD/JPY pair refreshed daily tops heading into the European session, with bulls now eyeing a move beyond the key 110.00 psychological mark.

A combination of supporting factors undermined the Japanese yen and assisted the USD/JPY pair to gain some positive traction for the second successive session on Monday. A goodish rebound in the equity markets dented demand for the traditional safe-haven JPY, which was further undermined by the worsening COVID-19 situation in Japan.

In fact, Japan's minister in charge of the coronavirus response, Nishimura Yasutoshi, suggested on Sunday that the government may introduce tougher measures to curb infections under the current law. This comes on the back of an extension of the state of emergency in Tokyo and 12 other prefectures, which will run through September 12.

Apart from this, weaker PMI prints out of Japan further acted as a headwind for the JPY. Japan PMI Manufacturing eased from 53.0 to 52.4 in August and the gauge for the services sector dropped sharply from 47.4 to 43.5, marking the worst reading in 15 months. This added to worries about the economic fallout from the continuous rise in COVID-19 cases.

Bullish traders further took cues from a modest uptick in the US Treasury bond yields, tough the ongoing US dollar profit-taking slide might cap gains for the USD/JPY pair. The uncertainties tied to the COVID-19 situation might have forced investors to reassess the timing of the Fed's tapering, which, in turn, prompted some USD profit-taking.

Hence, the market focus will remain on Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, which might provide fresh clues about the central bank's policy outlook. This, in turn, makes it prudent to wait for some strong follow-through buying before traders start positioning for any further appreciating move for the USD/JPY pair.

Technical levels to watch