USD/JPY: Offered below 106.00 even as trade sentiment improves

• USD/JPY stretches Thursday’s losses from 106.21 to trim Wednesday’s run-up.
• Japan’s National Consumer Price Index grew 0.3% YoY in July, Jibun Bank Manufacturing PMI rose past-45.2 for August.
• Japan eases re-entry restrictions for foreign residents, US House Speaker Nancy Pelosi again confuses stimulus watchers.
• US PMI, risk catalysts will be the key to watch.

USD/JPY drops to 105.65, intraday low of 105.62, amid the initial hour of Tokyo open on Friday. The yen pair remains on the back foot for the second day in a row even as risk barometers gain upside momentum. The reason could be traced from welcome economics from Japan and news of easing lockdown restrictions as well as a sluggish move by the US dollar.

Risk isn’t the only factor…

While comparing the USD/JPY pair’s latest losses with S&P 500 Futures and Nikkei 225, it can be said that the quote part ways from its traditional risk barometer role. While the S&P 500 Futures gain 0.35% and Nikkei 225 is up over 1.0%, the pair losses 0.10% on a day. The US dollar weakness and recently positive Japanese data are the main reasons behind the quote’s drop.

Japan’s National Consumer Price Index (CPI) rose past-0.3% YoY to 0.4% in July whereas the preliminary readings of the Jibun Manufacturing PMI gained beyond 45.2 previous readouts to 46.6.

It should also be noted that chatters suggesting Japan’s ease of coronavirus (COVID-19)-led restrictions for foreign residents also helped the Japanese Yen. The move ignores the Tokyo surge in virus cases for Thursday. As per the Kyodo News, “Tokyo reported on Thursday 339 additional cases of novel coronavirus infection, topping the 300 mark for the first time since Saturday, the metropolitan government said.”

On the other hand, Director of the US Centers for Disease Control and Prevention (CDC) Robert R. Redfield anticipate a further rise in the American pandemic cases even after saying that the tide is beginning to turn on the Southern outbreak and that virus deaths in the US should start dropping next week.

Elsewhere, the US House Speaker Nancy Pelosi said, “Timing is not right for a smaller coronavirus relief bill.” The Democrat earlier showed readiness to cut the aid package amount demand in half to renew hopes of America’s much-awaited stimulus. Furthermore, American Secretary of State Mike Pompeo’s tough stand against Iran and no clarity over the US-China trade talk also play a role in the latest risk moves.

Amid all these catalysts, the US 10-year Treasury yields rise 1.2 basis points to 0.656% whereas the US dollar index (DXY) drops 0.12% to 92.64 by the press time.

Given the lack of major data in Asia left for publishing, the pair traders will keep eyes on the risk factors comprising virus updates, trade news and stimulus headlines ahead of the key US PMIs.

Technical analysis

Failures to break 21-day EMA, at 106.12 now, drag the USD/JPY pair towards an ascending trend line from July 31, currently around 105.25.