• US-China goodwill gestures spark risk-on mood.
• USD/JPY buoyed by better market mood, higher Treasury yields.
• Next of relevance remains the US inflation report.

Having reached the highest levels since May 2019 at 110.21, USD/JPY has entered a phase of bullish consolidation on the 110 handle, as the bulls await the US Consumer Price Index (CPI) data for the next push higher.

The risk-on action seen in the global equities combined with higher US Treasury yields, in the wake of the optimism surrounding an imminent US-China phase one trade deal signing, helps keep the upbeat momentum intact in USD/JPY.

Further, the signs of goodwill exchanged between both sides also add to the better market sentiment and in turn underpins the spot. The US Treasury dropped the currency manipulator label for China while China pledged to buy an additional $80 billion of the US manufactured goods over the two years in the phase one trade deal.

Moreover, investors also cheered strong Chinese December Trade growth numbers that eased fears over China's economic slowdown, boosting the demand for the risk assets at the expense of the safe-haven yen.

Looking ahead, markets await the US CPI report due later on Tuesday at 1330 GMT for the further upside in the pair. The US CPI for Dec is seen rising 2.3% YoY vs. +2.1% last while the core figures are seen steady at +2.3% YoY.  

USD/JPY Technical levels to consider