After a notable drop to start the week, USD/JPY is finding a light base around 112.70-80 as bond yields creep higher so far today. The pair is back up just above 113.00 though sellers are firmly in near-term control (key hourly moving averages @ 113.39-67).

10-year Treasury yields are up 2.6 bps to 1.475% and that is helping to alleviate some pressure off yen pairs in the past few sessions.

Bond traders are also doing battle around key technical levels, as seen above with the 100 and 200-day moving averages in play now for 10-year Treasuries.

The inflation debate is going to be a long and drawn out battle over the next few weeks/months, and we’re not going to get any easy answers as the market will slowly and gradually formulate a view based on economic data.

As such, the constant push and pull in bonds is arguably going to make things a little tricky – not least with market participants a little edgy going into key releases such as the one today i.e. US consumer inflation report.

Going back to USD/JPY, this is a modest halt to the decline in the past few days but continue to keep an eye on the bond market as that remains the key driver for now.