USD/JPY flirts with session lows, around mid-109.00s

• A softer risk tone benefitted the safe-haven JPY and exerted some pressure on USD/JPY.
• The ongoing decline in the US bond yields further contributed to the intraday selling bias.
• A modest pickup in the USD demand should help limit any deeper losses, at least for now.

The USD/JPY pair edged lower through the Asian session on Monday and was last seen hovering near the lower end of its intraday trading range, around mid-109.00s.

Having failed near the key 110.00 psychological mark on Friday, the pair met with some fresh supply on the first day of a new trading week and was pressured by a combination of factors. A generally softer tone around the equity markets benefitted the Japanese yen's safe-haven status and was seen as a key factor exerting pressure on the USD/JPY pair.

The global risk sentiment took a hit from an Israeli study released on Saturday, indicating that South African COVID-19 mutant may beat the Pfizer vaccine. Adding to this, news that one of Iran's nuclear facilities was hit by a terrorist act further dented investor’s appetite for riskier assets and drove flows towards traditional safe-haven currencies.

Bearish traders further took cues from the ongoing decline in the US Treasury bond yields, though a modest pickup in the US dollar demand might help limit the downside for the USD/JPY pair. The USD found some support after Fed Chair Jerome Powell said that the US economy is set to make a turnaround and increased growth should provide more jobs.

During an interview with 60 Minutes, Powell further added that the Fed wants inflation moderately above 2% for some time but does not want it to go materially above 2%. It is worth mentioning that the upbeat US economic outlook, along with US President Joe Biden's infrastructure spending plan has been fueling speculations about an uptick in US inflation.

This, in turn, raised doubts that the Fed will retain ultra-low interest rates for a longer period. Hence, the focus now shifts to the release of the latest US consumer inflation figures on Tuesday. The data will influence the expectations about the Fed's next policy move and play a key role in determining the next leg of a directional move for the USD/JPY pair.

In the meantime, the broader market risk sentiment, the US bond yields ant eh USD price dynamics will be looked upon for some short-term trading impetus amid absent relevant market-moving economic releases.

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