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  • USD/JPY edged lower during the Asian session amid a softer tone surrounding the USD.
  • Dovish Fed expectations continued exerting some downward pressure on the greenback.
  • COVID-19 vaccine optimism undermined the safe-haven JPY and helped limit the downside.

The USD/JPY pair remained depressed through the Asian session and was last seen trading with modest losses, just below mid-104.00s.

The pair witnessed a modest pullback from the 104.65 region, or one-week tops touched earlier this Thursday and eroded a part of the previous day’s strong intraday positive move of nearly 100 pips. The downtick was exclusively sponsored by a softer tone surrounding the US dollar, albeit the prevalent upbeat market mood helped limit deeper losses for the USD/JPY pair.

As investors looked past Monday’s upbeat US PMI prints for November, speculations that the Fed might ease monetary policy in December exerted some fresh downward pressure on the greenback. Apart from this, concerns about the economic fallout from the continuous surge in new coronavirus cases further contributed to the weaker tone surrounding the greenback.

Meanwhile, the latest optimism over a potential early rollout of COVID-19 vaccines remained supportive of the risk-on environment. The global risk sentiment was further supported by news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition. This, in turn, undermined the safe-haven Japanese yen and extended some support to the USD/JPY pair.

Investors might also be reluctant to place aggressive bets ahead of Wednesday’s release of the FOMC meeting minutes, which will be scrutinized for the possibility of Fed easing in the December meeting. Hence, it will be prudent to wait for some strong follow-through selling before positioning for the resumption of the USD/JPY pair’s recent bearish trajectory.

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