- USD/JPY was seen oscillating in a range through the Asian session on Wednesday.
- The upbeat market mood undermined the safe-haven JPY and extended support.
- Weaker USD, concerns about US-China tensions kept a lid on any meaningful gains.
The USD/JPY pair lacked any firm directional bias on Wednesday and remained confined in a narrow trading band, around the 107.20-30 region.
A combination of diverging forces failed to provide any meaningful impetus to the pair and led to a subdued/range-bound price action through the Asian session. The upbeat market mood undermined demand for the safe-haven Japanese yen and was seen as one of the key factors lending some support to the USD/JPY pair.
The latest optimism about a potential coronavirus vaccine overshadowed concerns about surging COVID-19 cases in the US, which pushed California back into lockdown. This, in turn, bolstered investors’ appetite for perceived riskier assets and the same was evident from strong follow-through gains in the US equity futures.
The Japanese yen was further weighed down by the Bank of Japan’s (BoJ) dovish outlook, forecasting that the economy could contract by 4.7% in fiscal 2020. Meanwhile, the BoJ, as was widely expected, maintained its -0.1% short-term interest rate target and a pledge to cap 10-year government bond yields around zero.
However, nervousness over rising Sino-US tensions, coupled with a broad-based US dollar weakness kept a lid on any strong gains. The US President Donald Trump signed a bill sanctioning Chinese officials in response to Beijing’s national security law for Hong Kong and an executive order that ended preferential treatment for Hong Kong.
This makes it prudent to wait for a sustained move in either direction before positioning for any meaningful trading opportunities. Market participants now look forward to the US economic docket, highlighting the release of Empire State Manufacturing Index and Industrial Production. The data might influence the USD price dynamics and provide some impetus to the USD/JPY pair.
Technical levels to watch
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