USD/JPY: Depressed below 104.00 amid risk of more virus-led emergencies in Japan

• USD/JPY refreshes weekly low while extending the previous day’s losses.
• Market sentiment stays mildly positive as US stimulus hopes battle virus woes and American political turmoil.
• Japan PM Suga is likely to expand virus-led restrictions to more prefectures at 10:00 GMT speech.

USD/JPY remains on the back foot around 103.63 during the initial hour of Wednesday’s Tokyo open. The yen pair dropped heavily the previous day, while also snapping a four-day winning streak, as the US dollar marked across the board loses on the American stimulus hopes and welcome words from the Fed policymakers. It should, however, be noted that the risk-on mood has faded off-late amid chatters over worsening of the coronavirus (COVID-19) conditions in Japan and US political drama.

Covid woes, US politics poke stimulus hopes…

With no respite in the domestic virus infection, Japan is up for further activity restrictions. While backing the expectations, Japan’s Kyodo News said, “Prime Minister Yoshihide Suga is set to declare a state of emergency in seven additional prefectures including Osaka and Aichi on Wednesday, expanding the scope of the measure amid a resurgence of the coronavirus across Japan.”

Earlier in Asia, Nikkei also came out with the news suggesting a downward revision to the Bank of Japan’s (BOJ) GDP growth forecast for the fiscal year 2020-21 ending in March. The Japanese central bank downgraded its GDP predictions to -5.5% versus -4.7% previous estimations during the late-October meeting.

Other than Japan, virus conditions are also worsening in the UK and Germany where health systems are on the brink of breaking due to the jump in hospitalization.

Elsewhere, US House Majority Leader Steny Hamilton Hoyer recently conveyed Senate voting on President Donald Trump’s impeachment. The Democrats are clinging to their demands to outs Trump despite failing in their first attempt.

Talking about positives, markets expect US President-elect Joe Biden to announce heavy fiscal stimulus during his speech on Thursday. Also favoring the risks could be vaccine updates suggesting a successful start to tame the pandemic.

Amid these plays, Japan’s Nikkei 225 rises 0.13% whereas S&P 500 Futures struggle for a clear direction below 3,800. The US 10-year Treasury yields drop 2.4 basis points (bps) to 1.114% while derailing the seven-day winning streak by press time.

Moving on, Japan PM Suga’s speech will offer immediate directions ahead of the US Consumer Price Index (CPI) data. It’s worth mentioning that the USD/JPY traders should look for more negatives from PM Suga if they are targeting 103.00.

Technical analysis

21-day SMA near 13.50 can offer immediate support ahead of the 103.00 threshold. Alternatively, USD/JPY buyers are less likely to return unless witnessing an upside break of November tops surrounding 104.75.