USD/JPY holds weaker below mid-109.00s

The USD/JPY pair failed to preserve early up-move to a four-day high level near the 109.80-85 region and has now drifted into negative territory, eroding part of previous session's strong recovery gains. 

The pair failed ahead of the key 110.00 psychological mark and retreated around 40-pips from highs after the US President Trump threatened a government shutdown over the Mexican border wall funding. Trump's comments triggered some risk-aversion and propped the Japanese Yen's safe-haven demand.

Meanwhile, today's better-than-expected Japanese flash manufacturing PMI print further underpinned the domestic currency and collaborated to the pair's quick retracement from higher levels. 

The fall, however, has been limited, at least for the time being, as investors seemed reluctant to initiate aggressive US Dol bearish bets amid some possibilities of a hawkish rhetoric from the Fed Chair Janet Yellen at the Jackson Hole Symposium. 

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Later during the NA session, the release of new home sales data from the US would now be looked upon for some short-term trading impetus. In the meantime, broader market risk sentiment could act as a key determinant of the pair's movement through European trading session.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: "Bearish momentum appears to have run out of steam as suggested by the candlestick pattern on the daily chart and an improvement in the risk reversal. However, a sustained rally to 110.95 and above would need steepening of the yield curve. An end of the day close below 109.00 would be bearish."