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  • USD/JPY moved back above 103.50 on Tuesday from lows in the 103.30s amid a stronger dollar.
  • JPY held up relatively well, however, given the defensive bias seen across markets.

USD/JPY moved back to the north of the 103.50 level on Tuesday from earlier lows in the 103.30s, amid a broad strengthening in the US dollar that has seen the Dollar Index (DXY) move to the north of the 90.70 level in recent trade, driven primarily by a safe-haven bid amid concerns regarding the new mutant Covid-19 strain in the UK, as well as ongoing Brexit angst. The pair has proceeded to stabilise in between the 103.60s and 103.70s and currently trades closed Tuesday FX trade with gains of slightly more than 30 pips or around 0.3%.

JPY underpinned as havens remain well bid

The broad market tone was a defensive one on Tuesday. Yes, European equities managed to recover some of Monday’s steep losses and the S&P 500 only closed very slightly in the red, but all other asset classes point to risk-off; crude oil and industrial metals were lower, US bond yields were lower and the curve saw pronounced bull-flattening and in FX markets EM currencies and the likes of AUD, NZD and GBP all underperformed, while “ultimate safe-haven” USD was the best performer.

Comparative to most other G10 currencies, JPY actually had a pretty solid day, as did fellow safe-haven currency CHF. Not surprising really, given the ongoing concerns listed above.

Looking ahead for JPY; the Bank of Japan releases the minutes of the October policy meeting, which are of course very stale at this point after the bank already acted last week, extending its corporate funding scheme by six-months to September 2021 amid concerns regarding a continued pickup in the rate of Covid-19 spread in Japan. A speech from the BoJ Governor Haruhiko Kuroda at 00:00GMT on Thursday will be much more interesting, though the BoJ is not currently offering markets much by way of fireworks as are other global central banks.

Elsewhere, the October Leading Index figures are due out at 05:00GMT on Wednesday. JPY traders are likely to continue to focus much more on global macro themes such as USD flows and broader risk appetite.