Japanese brokerage firm, Gaitame.com, points out two key reasons for the drop in the pair over the past two days:
1. Dollar demand has waned significantly, as evident by narrowing yen-dollar basis swap
2. Yen buying by Japanese players ahead of the fiscal year-end is also prevalent
I'm not going to argue about the first one as that is what we all know after the Fed stepped in to remove financial/credit risks in the market on Monday.
But the second point is a bit less convincing because I would argue that most big Japanese corporates would have already repatriated flows about two weeks ago already - if not last week the latest. For some context, the Japanese fiscal year ends on 31 March.
Perhaps there are some last-minute flows but if anything else, I'd argue that the not-so-wild rush to the dollar is starting to give the yen a chance to shine once again.
The firm also does warn that the yen may also gain further if the virus outbreak in Japan explodes, causing Japanese stocks to fall and a potential lockdown in Tokyo.
In any case, the USD/JPY chart is telling for how the pair is acting out currently.
The key test today is the 200-day MA (blue line) @ 108.33. Break below that and sellers will establish a more bearish bias in the pair and look towards the 38.2 retracement level @ 107.69 next. If that gives way, a move towards 105.00 looks fairly plausible.