USD/JPY intermarket: Moving off lows as stocks recover

USD/JPY extended the recovery from 1-month lows during the last hours amid an improvement in risk appetite. The pair climbed to 106.83 after bottoming earlier at 106.25. It was trading around 106.68/74, still down for the day but off daily lows. It is the third decline in a row for the pair but it managed to hold above Friday’s highs. Today it traded marginally below but quickly rebounded rising back on top.

The rebound was supported by a stronger US dollar in the market. Greenback rose during most to the day but until the American session, the yen was the best performer. The Dow Jones is down 0.18% at 17,979 but off daily lows. The improvement in risk appetite came after European markets closed and removed strength out of the yen.

Another factor that supported the USD/JPY pair was Fed rate hike expectations that rose modestly today. According to the CME Group FedWatch tool odds for a June rate hike remained at 3.8% and for a July rate hike rose from 25.8% to 28%.

European bond yields reached fresh record lows while Japan and US bond yields also fell. US 10-year yield started at 1.68% and it was at 1.675%, after bottoming at 1.659%. Risk aversion and the ongoing and probable expansion of ECB and BoJ purchase programs contributed to the demand for bonds, supporting during half a day the yen. When the drop in yields stabilized, the rally of the Japanese currency lost strength.