USD/JPY remains depressed near mid-109.00s, downside seems limited

• A softer risk tone benefitted the safe-haven JPY and exerted some pressure on USD/JPY.
• The upbeat US economic outlook underpinned the USD and helped limit the downside.

The USD/JPY pair traded with a mild negative bias through the early European session and was last seen hovering around mid-109.00s, down 0.10% for the day.

The pair witnessed some selling on the first day of a new trading week and eroded a part of the previous session’s positive move to the highest level since June 2020. A pullback in the US equity futures drove some haven flows towards the Japanese yen and exerted some pressure on the USD/JPY pair. Bearish traders further took cues from a softer tone surrounding the US Treasury bond yields, though the underlying US dollar bullish sentiment helped limit any further losses.

The greenback remained well supported by the upbeat US economic outlook, bolstered by the impressive pace of coronavirus vaccinations and the passage of a massive stimulus package. Adding to the optimism, US President Joe Biden on Thursday made an ambitious pledge of administering 200 million vaccine shots in 100 days. Further supporting the prospects for a relatively faster US economic recovery were speculations for an additional $3.0 trillion infrastructure plan from the US.

Despite the supporting factor, overbought conditions on short-term charts kept a lid on any strong gains for the USD/JPY pair, at least for now. Investors might also refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of Friday’s release of the closely-watched US monthly jobs report (NFP). In the meantime, the broader market risk sentiment and the USD price dynamics might influence the pair amid absent relevant market moving economic releases.

Technical levels to watch