USD/JPY drops below 109.00 even as Asian equities rise

The US dollar is extending Thursday's decline in Asia, pushing USD/JPY to session lows near 108.50 amid a stimulus-driven uptick in the Asian stock markets.

Below 100-day MA

The pair faced rejection at 109.72 in early Asia and fell below the 100-day average support at 109.00 a few minutes before press time to hit a session low of 108.55.

Meanwhile, major Asian equity indices like Japan's Nikkei, Hong Kong's Hang Seng and South Korea's Kospi are flashing green.

The decline is not so much due to Yen demand but looks to have been fueled by the broad-based losses in the US dollar. The dollar index, which tracks the value of the greenback against majors, is currently trading at weekly lows near 99.30, having declined by nearly 200 pips on Thursday.

The dollar is being offered likely due to the unprecedented fiscal and monetary stimulus unveiled by the US government and the Federal Reserve in the last five days.

That said, the market sentiment remains fragile with the S&P 500 futures currently reporting over a 1% decline on the day. If the risk aversion worsens, the US dollar could again find haven bids, yielding a bounce in USD/JPY. The coronavirus outbreak is showing no signs of slowing down. Further, Thursday's US initial jobless claims showed the pandemic is causing greater damage than previously expected. So, another round of risk-off cannot be ruled out.

While the Japanese yen is a classic haven asset, during times of crisis markets trend to treat the US dollar as an anti-risk currency. The dollar index rose sharply from 94.65 to 103.00 in the 10 days to March 19, as the crash in the equity markets triggered margin calls and liquidity crises, forcing investors to seek safety in the US dollar.

Technical levels