USD/JPY refreshes multi-month tops, around 109.35 area

• USD/JPY edged higher for the third consecutive session and refreshed multi-month tops.
• The risk-on mood undermined the safe-haven JPY and remained supportive of the move.
• The recent rally in the US bond yields benefitted the USD and provided an additional lift.

The USD gained some traction heading into the European session and pushed the USD/JPY pair to fresh nine-month tops, around the 109.35 region in the last hour.

A combination of supporting factors assisted the pair to gain traction on the first day of a new trading week and build on the previous session's momentum back above the 109.00 mark. The underlying bullish sentiment in the financial markets continued undermining the safe-haven Japanese yen. This coupled with a modest pickup in the US dollar demand provided an additional boost to the USD/JPY pair.

Investors remain optimistic about a strong global economic recovery amid the impressive pace of COVID-19 vaccinations. This, along with the passage of a massive US stimulus package, further boosted investors' confidence and remained supportive of the prevalent upbeat market mood. It is worth recalling that US President Joe Biden signed a $1.9% trillion pandemic aid bill into law on Friday.

Meanwhile, the reflation trade has been fueling worries about a possible uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. This, in turn, continued pushing the US bond yields higher, which was seen as a key factor that extended some support to the US dollar and provided an additional boost to the USD/JPY pair's ongoing bullish trajectory.

Meanwhile, RSI (14) on the daily chart is holding in the overbought zone and warrants some caution before placing fresh bullish bets. Investors might also turn cautious and prefer to wait on the sidelines ahead of this week's FOMC meeting. Apart from this, the monetary policy update by the BoJ on Friday should assist traders to determine the next leg of a directional move for the USD/JPY pair.

In the meantime, the broader market risk sentiment, the US bond yields and the USD price dynamics will influence the USD/JPY pair. Traders might further take cues from Monday's release of the Empire State Manufacturing Index, due later during the early North American session, to grab some short-term opportunities.

Technical levels to watch