USD/JPY advances to fresh nine-month highs above 110.30 despite mixed sentiment

After spending the first two days of the week in a tight range below the 110 mark, the USD/JPY pair gained traction on Wednesday and climbed to its highest level since May at 110.36. As of writing, the pair was trading at 110.33, erasing 0.42% on a daily basis.

Warning signs for Japan's economy

Although the market sentiment stays mixed on Wednesday with US Treasury bond yields and major global equity indexes moving in opposite directions, the JPY struggles to attract investors. At the moment, the 10-year US T-bond yield is down nearly 1% on the day while major European equity indexes are up between 0.5% and 0.8%.

The disappointing data from Japan and coronavirus fears seem to be finally taking a toll on the JPY. This week's data revealed that Industrial Production and Machine Orders in Japan contracted by 3.1% and 3.5%, respectively, in 2019. Additionally, the coronavirus outbreak is expected to have a significant impact on the Japanese economy due to its exposure to China.

"The share of exports to China in Japan’s total good exports is close to 20%, and the share of exports to China in Japan’s GDP is around 3%,"  Bill Diviney and Aline Schuiling, senior economists at ABN AMRO, noted in a report this week. "On top of this, tourism from China has also become a rising source of income for Japan. It is now 1% of GDP – up sharply from just 0.3% in 2012. This is important, because as the SARS episode taught us, the hit to tourism is one of the main sources of economic spillovers from such an outbreak."

In the second half of the day, markets will be paying close attention to the FOMC meeting minutes. Ahead of this publication, the US Dollar Index is preserving its strength near the 99.50 handle, helping the bullish momentum remain intact.

Technical levels to watch for