USD/JPY inter-markets: rising yield differential might limit upside below 105.00

Following a victory in Sunday's upper house election, Japanese PM Abe confirmed to announce additional fiscal stimulus that sent the Japanese Yen tumbling lower across the board. The USD/JPY pair rallied over 350-pips from Monday's low near 100.50 region to currently trade at the highest level since the historic Brexit referendum, comfortably above 104.00 handle.

Monday's recovery momentum gained further traction on improving global risk-appetite, as depicted by slide in the Volatility Index (VIX) that boosted the broader US equity index (S&P 500) to all time high levels. Moreover, recovery in US and Japanese treasury yields further pointed to the prevailing risk-on sentiment across global financial markets. 

Further recovery in the US 10-year treasury yields has been supportive of the pair's additional up-move on Tuesday. However, a sharp slide in Japanese 10-year bond yields has now led to expanding yield differential, possibly suggesting that the USD/JPY bulls might take some breather at higher levels. 

Although, additional up-move towards 104.70-75 cannot be negated, expanding yield differential now seems to restrict further appreciating move. Adding to this, a sudden spurt in VIX, coupled with any disappointment on the expected stimulus measures from Japan, could trigger an equally sharp reversal for the pair.