USD/JPY slides back below 103.50 as US dollar gains ebb away

• USD/JPY has slid back below the 103.50 and to Monday Asia Pacific session levels as USD strength ebbs away.
• Safe-haven JPY has been one of the better G10 FX performers on Monday amid risk-off flows.

USD/JPY continues to fall back from earlier highs above the 103.80 mark as strength in the US dollar ebbs away. The pair currently trades just to the south of 103.50, with gains on the day now just 0.1% or roughly 10 pips. Indeed, USD has seen a majority of its gains eroded vs most of its major G10 counterparts since the midpoint of the European morning, with the Dollar Index (DXY) having slipped from highs above 91.00 to current levels in the 90.20s.

JPY benefits from safe-haven properties

Aside from USD, which is still Monday’s best-performing currency within G10 FX, JPY has held up very well. Monday has seen a distinct risk of bias to global market trade amid concerns regarding the news coming out of the UK regarding a recently discovered, more virulent strain of Covid-19 that is spreading rapidly in the country and prompting London and much of the South East to be plunged back into full-scale lockdown. Though much of the downside in global US equities at least has now pared, in part as a result of the fact that a number of bank stocks have soured on after passing Fed Stress Tests that will allow them to recommence stock buybacks, JPY continues to hold up well as USD ebbs from earlier highs.

Japanese PM draw USD/JPY line in the sand

Japanese PM Yoshihide Suga has reportedly told the Japanese Finance Minister not to let USD/JPY depreciate below 100, reported Nikkei during Monday’s Asia Pacific session. The report added that his comment came with an “unspoken message” that the Finance Minister should be prepared to sell JPYs for USDs if the pair breaches this threshold. Apparently, his comments have been confirmed by multiple sources.

Clearly then, the Japanese PM is concerned about the effect that further depreciation of USD/JPY might have on Japan’s trade balance with the US. Moreover, this might be the Japanese PM's way of inadvertently demonstrating that he has does not have confidence in the BoJ’s ability to further weaken JPY.

The comments did not have any immediate effect on USD/JPY, but beware that if/when the pair does start getting close to this level, further jawboning from the Japanese Finance Ministry will become more likely, as would overt market manipulation ala the SNB.

USD/JPY gains still capped by 21DMA

USD/JPY is still seeing significant selling pressure ahead of its 21-day moving average (DMA). On Monday, the pair rallied as high as the 103.89 level, only just over 10 pips away from the pair’s 21DMA at just above 104.00. The pair has struggled to sustain gains above its 21DMA since mid-November and has consistently been unable to recover back towards its 50DMA, which currently sits at 104.41. Meanwhile, the last time the pair was above its 200DMA, which currently sits at 106.31, was all the way back in June.

USD/JPY four hour chart