USD/JPY: Yen finds takers as equities turn red

• Yen is drawing bids amid risk-off tone in the equity markets. 
• Risk is being sold likely due to lingering coronavirus concerns. 
• The pair has formed a bearish reversal pattern on the hourly chart.

The bid tone around the Japanese Yen strengthened in Asia, pushing USD/JPY lower from 109.90 to 109.70, possibly tracking the risk-averse mood in the equity markets. 

Risk-off tone

The futures on the S&P 500 are currently reporting a 30% drop on the day. Meanwhile, stocks in South Korea and Hong Kong are currently shedding more than
1%. Major indices like Japan's Nikkei and China's Shanghai Composite are reporting a 1.2% and 0.30% drop, respectively. 

Meanwhile, the yield on the US 10-year Treasury note is down nearly three basis points at 1.559%. The equity market losses and the uptick in the anti-risk Japanese yen could be associated with lingering concerns over the economic impact of the coronavirus outbreak in China.  

While the number of new virus cases in mainland China fell below 2,000 on Tuesday for the first time since January, experts warned it is too early to say the outbreak has peaked. 

On the contrary, the outbreak looks to be spreading fast in other nations. Notably, Japan's infection rate has picked up since Feb. 12, doubling every four days, according to Jim Bianco, President of Bianco Research. 

No flood-like stimulus

While China's growth rate is widely expected to slow down sharply in the first quarter, the officials are not in favor of a big monetary stimulus. 

As per MNI News, the officials have called for a cautious monetary policy response that would target affected sectors and avoid reversing the current overall neutral stance. 

As a result, the equity market risk aversion could worsen, more so, as tech giant Apple said on Monday that it would not meet its revenue guidance for the March quarter due to slower iPhone production and weaker demand in China. All in all, the risk for USD/JPY looks skewed to the downside. 

Technical levels

The pair has formed a big head-and-shoulders pattern on the hourly chart with the neckline support at 109.67. An hourly close lower would confirm a breakdown and open the doors to 109.21 (target as per the measured move method).