USD/JPY sliding as the US dollar drops to test the 93 figure

USD/JPY is currently trading at 106.34 between a range of 105.87 and 106.57, slightly up on the day as risk sentiment remains robust, supporting the US stock markets to fresh all-time highs. 

Despite the terrible state of the Japanese economy, US Treasury yields have been trapped in relatively tight ranges, thus keeping USD/JPY subdued, therefore we are not seeing any aggressive sell-off in the yen.

Similarly, the greenback is under scrutiny as we head into the key event for the week, The Jackson Hole. More on that below.

Meanwhile, the biggest trigger to the JPY in the near term would probably be a correction in global asset markets. However, there have been plenty of fundamentals that have yet to show up in the markets.

The wider opinion in the market, despite the risks of coronavirus and the economic downturn, is that either Congress, the Fed or a combination of the both would come to the rescue at the first sign of trouble.

Banking on an equity market correction remains like being in the way of a steam train and the yen can't catch a sustainable bid, despite deteriorating US data.

All eyes on the Fed

However, data is likely to play second fiddle to the Federal Reserve sentiment and there is some way to go until the next meeting.

Therefore, unless the rhetoric from Fed officials suddenly flips hawkish, the greenback is unlikely to run higher before the FOMC that next meets on 15/16th September.

Jackson Hole will, of course, be important for the stock markets, the greenback and ultimately USD/JPY.

Given the persistent inflation undershoot, the Federal Reserve is expected to indicate that rates could be lower for longer during a symposium themed and entitled as “Navigating the Decade Ahead: Implications for monetary policy”. 

Fed Chairman Jerome Powell’s keynote address will offer the market some insights on the Fed’s review of monetary policy and the anticipated average inflation targeting.

USD/JPY levels

The major support for the pair is near 105.00 where Japanese fund managers are expected to be lurking. To the upside, 107.80 is a keen target.