USD/JPY holding in bullish territories in the face of overcooked USD

USD/JPY is topping out in the 111 handle as the dollar loses steam and the pair falls into consolidation between 110.08 and 111.62. The US dollar has slowed in its advance following a series of intervention from the central banks seeking to free-up the USD liquidity and as the Federal Reserve moves to purchase unlimited quantities of Treasury bonds as well as mortgage-backed securities, direct purchases of corporate bonds, and direct loans to companies, loans which Congress now need to approve.  

Watching currency wars

Apart from all of this, markets are now weighing the possibility fo currency wars following President Donald Trump's comments that the strength of the dollar makes trade difficult. The question is whether the strength of the USD will trigger a round of concerted intervention. Indeed,  the BoJ will be keeping a close eye on the market and to continue to provide liquidity through various open market operations and asset buying. 

As for the yen, a switch in the FX playbook could see a flight to the yen considering COVID-19's spread and negative fallouts for the global economy. However, as analysts, a Rabobank pointed out, even if the number of coronavirus cases and related mortality rates peaks in Europe and the US over the next few weeks, "this is likely to see panic reducing and USD strength ebbing." "If the crisis is prolonged and the value of the USD continues to soar, however, concerted FX intervention to soften the dollar could be again on the menu."

We next await the Treasury market's reaction to the progress on the fiscal front as Congress continues to debate a $1.5-2tn "phase 3" rescue package. Democrats blocked the bill through the Senate arguing it focuses on the corporate sector and does little to help everyday people. While there has been no resolution to the stalemate situation, but it is expected to be resolved shortly which, combined with the latest move by the Fed to unlimited QE, should continue which on yields that have been heading lower this week (albeit, covering 6% today). 

USD/JPY levels