USD/JPY consolidates in a range below mid-111.00s

• USD/JPY struggled to gain any meaningful traction and remained confined in a range on Thursday.
• A softer tone around the USD held bulls from placing fresh bets and capped the upside for the pair.
• A combination of factors undermined the safe-haven JPY and should acted as a tailwind for the major.

The USD/JPY pair lacked any firm directional bias and seesawed between tepid gains/minor losses, below mid-111.00s heading into the European session.

A combination of factors assisted the USD/JPY pair to gain some positive traction during the early part of the trading action on Thursday, albeit the uptick lacked bullish conviction. The risk-on impulse in the markets undermined the safe-haven Japanese yen, which was further pressure after the Bank of Japan (BoJ) slashed its assessment for five of Japan’s nine regional economies.

The global risk sentiment witnessed a dramatic turnaround on Wednesday after Russian leaders reassured Europe on gas supplies. Apart from this, the top US Senate Republican Mitch McConnell said that his party would allow an extension of the federal debt ceiling into December to avert a federal debt default. This further boosted investors' appetite for perceived riskier assets, like equities.

Bullish traders further took cues from a modest uptick in the US Treasury bond yields, though a softer tone around the US dollar kept a lid on any meaningful upside for the USD/JPY pair. The downside, however, remains cushioned amid expectations for an early policy tightening by the Fed and the recent widening of the US-Japanese government bond yield differential.

The US bond yields have been rallying since late September when the Fed signalled that it would begin tapering its monthly bond purchases by the end of 2021. The markets also seem to have started pricing in the possibility of a Fed rate hike move in 2022 amid worries that surging energy prices will stoke inflation. This should act as a tailwind for the buck and the USD/JPY pair.

The fundamental backdrop seems tilted in favour of bullish traders and supports prospects for an extension of the recent appreciating move witnessed over the past three weeks or so. However, investors seemed reluctant to place aggressive bets, rather preferred to wait on the sidelines ahead of Friday's release of the closely watched US monthly jobs report (NFP).

In the meantime, traders might take cues from Thursday's release of the usual Weekly Initial Jobless Claims data from the US, due later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment, will influence the USD/JPY pair and allow traders to grab some meaningful opportunities.

Technical levels to watch