USD/JPY: Sinking in a trade war storm, risks break below 109

USD/JPY risks falling below 109.00 today on deepening US-China trade issues, having lost more than 300 pips in the last 20 days on haven demand for anti-risk Japanese Yen.

As of writing, the currency pair is trading in the red at 109.22. The spot hit a low of 109.02 on Monday – the lowest level since Feb. 1 – as the Dow Jones Industrial Average fell more than 600 points. 

Risk was already under pressure with investors losing faith that a US-China trade could happen soon. These fears were bolstered after China said it would impose tariffs ranging from 5% to 25% on US goods worth $60 billion from June 1. 

In response, Trump threatened to tax the remainder of goods that the US imports from China, having raised tariffs on $200 billions worth of Chinese goods from 10% to 25% on Friday. The flight to safety gathered pace with tit-for-tat tariffs, pushing USD/JPY lower. 

While Trump downplayed the negative impact of China’s tariffs on the US economy, the reaction from the financial markets suggests otherwise. Further, ratings agency Moody’s has warned that breakdown in trade talks would lead to policy uncertainty and an abrupt repricing of risk assets globally.

The global equities, therefore, could remain on the defensive, keeping JPY better bid against most majors. Gold’s break above $1,300 also suggests the risk-off is here to stay. As a result, USD/JPY risks falling below 109.00 today.

On the data front, Japan reported a bigger-than-expected trade surplus earlier today, which failed to move the needle on JPY pairs. 

Technical Levels