USD/JPY holds onto recovery gains below 108.00 ahead of BOJ

• USD/JPY extends pullback moves but stays below Tuesday’s top near 108.10.
• US dollar recovers from 14-day low amid upbeat data, fresh risk-off sentiment.
• Fears of virus resurge, US-China tussle weigh on the risks.
• BOJ’s emergency meeting, Japan’s National Consumer Price Index become the key.

USD/JPY drops to 107.60 during the pre-Tokyo Asian session on Friday. Even so, the pair stays away from the previous day’s low surrounding 107.49. While the return of risk-off sentiment struggles to choose between the US dollar and Japanese yen, better than forecast US data seems to have given the greenback an upper hand off-late. Though, the markets seem to turn cautious ahead of the Bank of Japan’s (BOJ) emergency meeting.

Trade sentiment sours…

Although hopes of further stimulus remain on the cards, fears of coronavirus (COVID-19) wave 2.0 and the US-China tussle heavy the risks off-late. Despite the flattening of the virus curve in Europe and some parts of Asia, global cases cross five million. The news joins recently increasing numbers from China and Germany, as well as the South US, to magnify the virus woes. Though, US President Donald Trump chooses not to close the economy during the second wave of the virus.

Additionally, the world’s top two economies got another reason, the Hong Kong issue, to fight over. In response (likely) to the early-month comments from the US policymakers to make sure that Hong Kong remains free, Chinese diplomats again turned angry over the Trump administration. The issue intensifies the tension between the US and China while they are still jostling with the trade and virus outbreak.

As a result, Wall Street flashed mild losses by the end of Thursday’s session whereas US 10-year Treasury yields remain pressured near 0.68%.

Elsewhere, the US May month preliminary activity data joins mildly higher than forecast weekly Jobless Claims to keep the USD on the front foot. It should also be noted that the US central bank policymakers, including the Fed Chair Jerome Powell, have recently been loud on defying the negative rates while staying ready to offer further easy money if needed.

While the risk catalysts are likely to remain as the major drivers, Japan’s April month National Consumer Price Index (CPI) and National CPI ex-Fresh Food become important to watch ahead of the BOJ’s emergency meeting. The CPI YoY rose 0.4% in March whereas the CPI ex-Fresh Food is expected to drop 0.1% versus 0.4% prior and offer an additional reason for the BOJ to keep its readiness to ease monetary policy.

The BOJ is less likely to offer any surprises as it has already cleared intention behind the emergency meeting, to provide funding to small institutions. However, signals for the broad monetary policy will be watched closely for immediate direction.

Technical analysis

Highs marked during mid-April and May 19, around 108.10, become the key resistance while an ascending trend line from May 07, at 107.55 now, can check sellers during the fresh fall.