USD/JPY remains depressed below mid-109.00s, over one-week lows

The USD/JPY pair maintained its offered tone through the mid-European session and was last seen trading around the 110.40-35 region, just above one-and-half-week lows touched earlier this Monday.

The risk-off impulse in the market benefitted the safe-haven Japanese yen and was seen as a key factor that dragged the USD/JPY pair lower for the fourth successive session. That said, a combination of factors held traders from placing aggressive bearish bets and helped limit any further losses, at least for the time being.

Investors remain concerns about the potential economic fallout from the fast-spreading Delta variant of the coronavirus. The market worries were further fueled by disappointing Chinese macro data, which pointed to a surprisingly sharp slow down in the world's second-largest economy. This, in turn, weighed on investors' sentiment.

The flight to safety, along with the uncertainty over the likely timing for policy tightening by the Fed dragged the US Treasury bond yields lower. This was seen as another factor that acted as a headwind for the USD/JPY pair. However, reports that Japan is set to extend the state of emergency measures to 12 September capped gains for the JPY.

Apart from this, a modest pickup in the US dollar rebound extended some support to the USD/JPY pair. The USD uptick lacked any obvious catalyst and could be attributed to the unwinding of aggressive bearish bets ahead of this week's key data/event risks – the release of US Retail Sales data, the Fed Chair Jerome Powell's speech and the FOMC meeting minutes.

Monday's US economic docket features the only release of the Empire State Manufacturing Index, though is unlikely to provide any meaningful impetus to the USD/JPY pair. This further warrants some caution for aggressive traders and positioning for any meaningful recovery.

Technical levels to watch