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  • USD/JPY fell from 106.30 to 105.74 after US ISM data that disappointed.
  • In fears of a looming recession, the US 2-year Treasury yields keeled over.

USD/JPY is flat in the Tokyo open having fallen from 106.30 to 105.74 after US ISM data that disappointed. USD/JPY is currently trading at 105.88, down by -0.04% having travelled between 105.82 and 105.98 in recent trade.  

The US ISM manufacturing index arrived at 49.1 for August versus 51.2 in July which was the first sub-50 reading since August 2016 and is the weakest figure since January 2016. “This is a clear disappointment that will provide further fuel to the market and President Trump’s desire for further Federal Reserve interest rate cuts,” analysts at ING Bank argued.

Subsequently, in fears of a looming recession, the US 2-year Treasury yields keeled over from 1.52% to 1.43% which was a two-year low while the 10-year yield from 1.51% to 1.43% which was a three-year low – “Markets are pricing 29bp of easing at the 19 September Fed meeting, and a terminal rate of 0.90% (Fed funds rate currently 2.13%)” – according to analysts at Westpac.

Fed chat

Meanwhile there was some Fed commentary which was mixed. Boston’s Rosengren said the economy is doing fine and downplayed concerns over yield curve inversion, but left the door open to a rate cut given global weakness and tariffs. St. Louis’s Bullard however argued for a 50bp cut this month to get ahead of market expectations. Both are voters at this year’s FOMC.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, notes that the USD/JPY pair is trading below the 38.2% retracement of its August decline at 106.30, and near the 23.6% retracement of the same decline at around 105.55.