USD/JPY inter-markets: deteriorating risk-appetite to pave way for further downslide

Having posted a session high near 112.75 region, the USD/JPY pair came under renewed selling pressure and dropped to its lowest level since Nov. 29.

Currently trading around 112.20-25 region, the pair moved dangerously close to decisively breaking below 112.00 strong support during early NA session amid prevalent risk-off mood. A spike in the Volatility Index (VIX) is indicative of global risk-aversion, which is further reinforced by a sharp slide in the US 10-year treasury bond yields. Lower investor appetite for riskier assets tends to boost demand for traditional safe-haven assets, including the Japanese Yen, and has been a key factor exerting some renewed selling pressure around the major.

Adding to this, an up-tick in 10-year JGB yields, leading to lowering of the yield differential, is swinging pendulum in favor of the Japanese Yen, despite of a broad based US Dollar recovery. 

Meanwhile, as investors digest Friday’s mixed jobs report from the US, fading expectations of additional Fed rate-hike action in the near-term, against the backdrop of uncertainty surrounding the US President Donald Trump’s fiscal policies, is also collaborating to the pair’s downslide on Monday. The CME Group’s FedWatch Tool is pointing to over 90% probability of status quo monetary policy at the Fed’s next monetary policy meeting in March. 

Hence, it would be prudent to conclude that any further deterioration in investors’ risk-appetite would increase possibilities of a run through big stops near 112.00 handle and accelerate the downslide even from current levels. 

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