USD/JPY flits with weekly low around 134.80 area, stronger USD acts as a tailwind

• USD/JPY drifts lower for the second successive day and drops to a fresh weekly low.
• A softer risk tone benefits the safe-haven JPY and exerts some downward pressure.
• A goodish pickup in the USD demand could lend support and limit further losses.

The USD/JPY pair attracts fresh selling following an intraday uptick to the 134.85 region and turns back lower for the second straight day on Thursday. Spot prices continue losing ground through the early North American session and drop to a one-week low, around the 133.75 area in the last hour.

Against the backdrop of concerns over the US debt ceiling, mixed Chinese inflation figures released on Thursday fuel worries about the economic outlook for the second quarter and tempers investors' appetite for riskier assets. This is evident from a fresh leg down in the equity markets, which boosts demand for the safe-haven Japanese Yen (JPY) and exerts downward pressure on the USD/JPY pair.

The global flight to safety, along with the growing acceptance that the Federal Reserve (Fed) is nearing the end of its year-long rate-hiking cycle, contributes to the ongoing fall in the US Treasury bond yields. This results in a further narrowing of the US-Japan rate differential and also benefits the JPY. That said, a goodish intraday pickup in the US Dollar (USD) demand could lend support to the USD/JPY pair.

The USD bulls, meanwhile, seem rather unaffected by the softer US Producer Price Index (PPI) and a larger-than-expected rise in the Weekly Initial Jobless Claims. This, in turn, might hold back traders from placing aggressive bearish bets around the USD/JPY pair. Nevertheless, spot prices remain well within the striking distance of the monthly swing low, around the mid-133.00s touched last Friday.

Technical levels to watch