USD/JPY lower as safe haven demand was spurred

US dollar was losing ground against the Japanese yen on Monday, after US Treasury Secretary Jacob Lew renewed his call for an increase in the nations debt limit in order to avert a default, which bolstered demand for safe haven assets, such as the yen.

USD/JPY fell to a session low at 96.87 at 7:26 GMT, after which consolidation followed at 96.91, losing 0.58% on a daily basis. Support was likely to be received at August 7th low, 96.30, while resistance was to be met at October 4th high, 97.47.

On Sunday Republican House Speaker John Boehner said that the House will not support bills in favor of a complete re-activation of the government or raise the US debt limit unless agreement on spending cuts with the Democrats was reached.

The Obama administration has said that it would not negotiate with Republicans over funding the government or raising the debt ceiling, stating that it was part of the basic functions of Congress and should not be used as a point of leverage.

Investors stepped away from riskier assets and boosted demand for safe haven alternatives to the US dollar, because of the persisting deadlock in the US. “On the 17th, we run out of our ability to borrow, and Congress is playing with fire,” Treasury Secretary Jacob Lew said on CNN’s “State of the Union” on Monday. “If they don’t extend the debt limit, we have a very, very short window of time before those scenarios start to be played out. If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default”.

“The deadline to avoid a U.S. government default is approaching, and risk aversion is building,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., cited by Bloomberg. “The weekend brought no agreement in Washington, and until we have one, the yen is likely to be bought as a haven.” Japanese currency has a tendency to gain strength in times of financial and/or economic imbalances, as Japan does not rely on foreign capital in order to fund its deficits.

Meanwhile, in its monthly report, released today, Bank of Japan said that it projected Japanese industrial output will continue to rise during the remaining months of this year. At the same time, export figures will gradually climb. According to the report, there was still a high level of uncertainty what the performance of industry will be, but however, expectations pointed a large-scale increase in production, including sectors of transportation and electronics.

Elsewhere, the yen was gaining ground against the euro, with EUR/JPY cross down by 0.31% for the day to trade at 131.69 at 9:03 GMT. GBP/JPY pair was falling 0.23% to trade at 155.79 at 9:05 GMT.