USD/JPY remains poised to extend gains beyond 110.80 amid higher US T-yields

USD/JPY started the new trading week on a muted note.
Higher US Treasury yields underpins the demand for the US dollar.
FOMC tapering optimism, China’s Evergrande default fears, and upbeat economic data remain vocal points.

USD/JPY consolidates gains following the previous week’s rally in the Asian trading hours on Monday. The pair rose from multi-month lows near 109.10 and peaked at 110.79 in a more than 150-pips movement in the past week backed by the greenback strength. At the time of writing, USD/JPY is trading at 110.70, up 0.01% for the day.

The US benchmark 10-year Treasury yields rose by 4 basis points to 1.45% on Friday as investors digested the Federal Reserve announcement to start reducing its emergency pandemic stimulus in its two-day policy meeting on Wednesday.

The US Fed Chairman Jerome Powell said that the central bank would taper its $120 billion monthly bond purchases “soon”, which the market believed it could be as soon as November.This would eventually follow interest rate hike in next year. In addition to that, the greenback remained elevated near 93.00 following the upbeat economic data and hawkish Fed’s official members. The US New Home Sales gained 1.5% in August for the second consecutive month as per the US Census Bureau latest report.

Furthermore, Kansas City Fed President Esther George said that the US job market has already met the Fed’s criteria to reduce its monthly asset-purchase and it’s now time to discuss the size of the balance sheet. The sentiment was further supported by the US House of Representatives Speaker Nancy Pelosi stance on the passage of the $1 trillion infrastructure bill but was a bit doubtful about bringing it to the House floor on Monday.

The gains were limited for USD/JPY on the renewed fears of China’s property giant Evergrande default risk as interest payment deadline expired without any announcement from the company. This, in turn, aids the safe-haven asset yen. Traders are now waiting for the Bank of Japan (BOJ) Governor Haruhiko Kuroda speech, US Durable Goods Orders to gauge market sentiment.