USD/JPY drops toward 109.30, remains sideways

The USD/JPY pair dropped to 109.30, reaching a two-day low late on Tuesday amid thin market conditions ahead of holidays across the world. The US dollar weakened modestly but overall remained in the recent range. 

Despite the recent move lower from 109.39 to 109.30, the USD/JPY continues to move sideways, around 109.30/40. The pair continues to consolidate after being unable to break above 109.70, while the recent correction found support above the 20-day moving average. 

Data released on Tuesday, showed the US Richmond Fed Manufacturing Index dropped to -5 from -1, significantly below expectations of a reading of 9. The report was largely ignored, in a quiet session. Wall Street is about to close and on Wednesday most markets across the globe will not open. Full normal activity is likely to return on Friday. 

Earlier today, the minutes of the Bank of Japan meeting contained no surprise.  “The BoJ’s relative optimism about domestic consumption combined with some additional fiscal support from the Japanese government suggests that monetary policy settings are likely on hold for now. On the margin this could lend some support to the JPY, though the relative level of risk appetite is likely to be a bigger driver for the currency in the coming months”, explained analysts at Rabobank. 

On a medium-term perspective, at Rabobank they see positive news regarding a Phase 1 trade deal between the US and China, keeping USD/JPY at the top end of its range in early 2020. “However, we see trade tensions and growth fears re-emerging and this is set to weigh on USD/JPY later in the year.”