Global financial markets started the new trading week on the defensive as trade-related optimism was overweighed by geopolitical concerns. In particular, Libyan militias battling for control of the country’s capital, Tripoli, launched air strikes against one another on Sunday. The US Secretary of State Mike Pompeo said that the US required the Libyan National Army loyal to Gen. Khalifa Haftar to stop its offensive on Tripoli.
Against this backdrop, risk sentiment has deteriorated, which fueled the safe-haven yen demand. USDJPY, which rose to the 111.80 region late last week, turned lower on Monday and got back below the 200-DMA around 111.50. The pair so far registered a low of 111.34 and so far stays relatively firmly above the 111.00 handle.
Amid rising geopolitical tensions, the yen could gain further in the short term should the escalation continue. On the other hand, however, fresh positive news from the US and China could lift investor sentiment again. So, the downside potential for the USDJPY pair looks limited in a bigger picture.