The firm notes that Japanese exporters have been steadily selling the pair after having climbed above the 110.00 level

Daiwa Securities is out with a note saying that USD/JPY could see a consolidation period after the rapid gains in the last month, with the potential for that to correct towards 106 and 107 as Japanese exporters keep up with dollar selling.

“The market is adjusting its positions, particularly after USD/JPY unexpectedly jumped around the end of the fiscal year in March. Japanese exporters have been selling the dollar steadily after the greenback climbed above 110.”

Adding that the move could have been exacerbated by sharp gains in Treasury yields, which prompted stop-loss sales of US bonds. Now that is over and done with, there could be a period of consolidation instead.

The firm argues that the dollar's uptrend may slow as Treasury yields fail to advance following the US PPI and CPI prints in recent days.

That said, they do hold a view that USD/JPY is unlikely to decline sharply as underlying economic fundamentals in the US remain strong.

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Looking at the chart, the breach below 109.00 is a significant one if sellers can pull through towards the closing stages of the day. That sets up the potential for a push towards the support region at around 108.33-40 next and leaves things more vulnerable.

If Treasury yields fail to hang on to the soft bottom around 1.60%, that may be a key trigger for a modest pullback in USD/JPY towards the area where Daiwa is suggesting.

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