- USD / JPY gains continuation traction for the second day in a row on Monday.
- A positive risk sentiment and the worsening covid-19 situation in Japan weighs on the JPY.
- A rally in US bond yields favors the pair’s higher move, but a weaker USD limits gains.
The pair USD/JPY has risen to new daily highs at the start of the European session on Monday, with the bulls now looking for a move beyond the key psychological level of 110.00.
A combination of supporting factors has weighed on the Japanese yen and helped the USD / JPY pair to gain some positive traction for the second day in a row on Monday. A good rally in the stock markets has weighed on demand for the JPY as a safe haven, which has been further affected by the worsening COVID-19 situation in Japan.
Indeed, the Japanese minister in charge of the coronavirus response, Nishimura Yasutoshi, suggested on Sunday that the government could introduce tougher measures to curb infections under current law. This follows an extension of the state of emergency in Tokyo and 12 other prefectures, which will run until September 12.
Apart of this, weaker PMIs in Japan they also acted as a headwind for the JPY. The Japanese manufacturing PMI fell from 53.0 to 52.4 in August and the indicator for the services sector fell sharply from 47.4 to 43.5, marking the worst reading in 15 months. This added to concerns about the economic consequences of the continued increase in COVID-19 cases.
The pair’s bulls took further indications from a modest rebound in U.S. Treasury yields, although a fall in the strength of the US dollar could limit gains for the USD / JPY pair. The uncertainties linked to the COVID-19 situation could have forced investors to reassess the timing of the Fed’s downsizing, which in turn led to some profit taking around the USD.
Therefore, the market will focus on Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium, which could provide new clues on the central bank’s monetary policy outlook. This, in turn, makes it prudent to wait for some strong continuation buying before investors start to position themselves for any further bullish movement for the USD / JPY pair.
USD / JPY technical levels
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