USD/JPY endures below YTD highs near 111.50 as US T-bond yields soar, Powell speech eyed

• USD/JPY posts gains for the fifth straight day on Wednesday.
• US benchmark 10-year Treasury yields bounce to 3-month highs.
• Fed’s tapering expectations, China’s Evergrande default risk, risk-off mood strengthen demand for the US dollar.

The strong buying pressure in the US dollar continues to push USD/JPY higher. The pair refreshed the yearly highs above 111.60 in a 30-pips movement on Tuesday buoyed by skyrocketing US Treasury yields. At the time of writing, USD/JPY is trading at 111.50, up 0.01% for the day.

The US benchmark 10-year Treasury yields jumped 6.2 basis points to 1.56% on Tuesday, at its highest levels since June. The rally started in the T-notes last week when the Fed indicated that it may soon begin reducing its bond purchases. Meanwhile, Fed Chair Jerome Powell said in his testimony before the US Senate the economy has conditions satisfactory for tapering but there’s still a long way from meeting the test for maximum employment.
 
The US Dollar Index (DXY), which tracks the performance of the greenback against six major currencies, extends gains on Wednesday and trades near a 10-month high at 92.75 tracking the soaring US T-bond yields. In addition, St. Louis Federal Reserve President James Bullard said high inflation may require more aggressive steps by the US central bank including two interest rate hikes.

Moving on to the Japanese yen, the gains were limited ahead of domestic political uncertainty. Japan's ruling LDP will elect a new leader on Wednesday. The members of LDP will vote for either Taro kono or Fumino Kishida to become the party’s president and, subsequently, the Prime Minister. Furthermore, according to the minutes of the Bank of japan (BOJ) July meeting revealed that some policymakers warned of the risk of a delay in the country’s economic growth due to state of emergency curbs to contain the coronavirus.

As for now, traders are waiting for US Pending Home Sales data and Fed Chair Powell speech  to gauge market sentiment. 

USD/JPY additional levels