USD/JPY struggles for direction, flat-lined below mid-109.00s ahead of US data

The USD/JPY pair seesawed between tepid gains/minor losses through the mid-European session and was last seen hovering in the neutral territory, just below mid-109.00s.

A combination of factors assisted the USD/JPY pair to attracted some dip-buying near the 109.20 region on Thursday, though the attempted recovery lacked any follow-through. The Japanese government cut its economic view for the first time in four months, which, in turn, weighed on the domestic currency. This, along with a strong pickup in the US dollar demand, extended some support to the major.

In a monthly assessment earlier this Thursday, the government pointed to domestic and overseas virus situations as evident downside risks to the country's economic recovery. Among key economic elements, authorities downgraded their view on private consumption for the first time in four months and production for the first time in 17 months, though upgraded the view on home construction.

On the other hand, expectations that the Fed would eventually begin rolling back its massive pandemic-era stimulus later this year continued acting as a tailwind for the USD. Apart from this, a modest uptick in the US Treasury bond yields underpinned the greenback and provided a modest lift to the USD/JPY pair. That said, the prevalent cautious mood kept a lid on any meaningful upside.

Investors remain worried about the fast-spreading Delta variant and a global economic slowdown. This was seen as the only factor that extended some support to the safe-haven Japanese yen and capped gains for the USD/JPY pair. Market participants now look forward to the US macro releases – Retail Sales, Philly Fed Manufacturing Index and Weekly Initial Jobless Claims for a fresh trading impetus.

Technical levels to watch