USD/JPY looks for clear direction around 10-month top above 112.00

• USD/JPY stay modestly changed following its run-up to multi-week high.
• Downbeat fundamentals at Japan seems to dim its safe-haven appeal, broad US dollar strength adds to the pair’s fuel.
• Japan’s inflation/activity numbers can offer immediate direction.

Following its rally to the highest levels since April 2019, USD/JPY steps back to 112.10 amid the initial trading hours of Friday’s Asian session. With the deteriorating economics from Japan, the Japanese yen seems to lose its allure as a risk-free currency and loses heavily against the US dollar despite rising coronavirus fears.

Is the safe-haven in danger?

With the disappointing Japanese growth numbers for the fourth quarter (Q4) 2019, the BOJ’s age-old status-quo is in question while some in the market, including the International Monetary Fund (IMF), doubting the central bank’s inflation expectations. As a result, the safe-haven currency seems to have lost its allure off-late. However, traders will still look for more inflation as policymakers from Japan are keeping the doors open for further expansionary/fiscal measures to cope-up with the problems.

Risk-tone remains weak and the US fundamentals are strong…

China’s coronavirus is spreading heavily into the neighbor nations and the frequent changes to count the numbers at home have also contributed to the market’s risk-off.

As a result, the US 10-year treasury yields trim five basis points (bps) to 1.59% while the US dollar remains as the market favorite.

In addition to the risk aversion, strong reading of the US Philadelphia Fed Manufacturing Survey signals that the world’s largest economy is still unaffected due to the coronavirus.

Markets are now awaiting Japan’s National Consumer Price Index, Jibun Bank Manufacturing PMI and All Industry Activity Index for the immediate direction while the US data can entertain momentum traders during the rest of the day. However, updates from China will keep the driver’s seat.

Technical Analysis

A sustained break of April 2019 top surrounding 112.40 becomes necessary for the bulls to take aim at 112.80 and 113.00. In the absence of which, overbought RSI could keep flashing the warning of a pullback to 110.80.