USD/JPY rises amid falling US bond yields and risk aversion

• USD/JPY's ascent driven by a cautious market mood, with Wall Street showing mixed performance and US Dollar strength.
• Narrowing US trade deficit and business sentiment improvement overlooked as traders await key US inflation data.
• Tokyo's core inflation report suggests continued ultra-loose monetary policy by BoJ, adding context to currency dynamics.

The USD/JPY posted decent gains late in the North American session, courtesy of risk aversion as investors shrug off economic data from Japan. The major is trading at 144.55, gaining 0.23%.

The Japanese Yen fails to gain traction in a risk-off mood

Risk aversion is driving price action, as Wall Street is trading with losses in two of its three largest stock indices, down between 0.06% and 0.40%. The Nasdaq 100 is the outlier gaining 0.25%.

In the FX space, the US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, advances 0.26%, up at 102.56 amid falling US Treasury bond yields.

Economic data in the United States (US) was mainly ignored by market participants focused on the inflation report on Thursday. Nevertheless, the US Department of Commerce revealed that November’s trade deficit narrowed less than estimates and the previous month's data. The Balance of Trade rose to $-63.2 billion, from $-64.5 in October to $-65 billion foreseen.

Earlier, the National Federation of Independent Business (NFIB) revealed the results of their Survey, which showed that business sentiment improved but remained below the 50-year average of 98, coming at 91.9 in December, above November’s 90.6. the survey highlighted that inflation is businesses' main concern.

Aside from this, core inflation in Tokyo was lower than expected and came at 2.1% YoY, from 2.3% in November, matching estimates of 2.1%. Even though there have been speculations the Bank of Japan (BoJ) would normalize monetary policy in the near-term, data suggests maintaining the ultra-loose policy, is the path to follow.

Ahead of the week, the Japanese economic docket will feature the Current Account on Thursday. On the US front, inflation data is widely expected to show a mixed print, which could pave the way for a muted reaction in the financial markets.

USD/JPY Technical Levels