USD/JPY edges lower toward 108 pressured by falling US T-bond yields

• 10-year United States (US) Treasury bond yield is down more than 2% on Tuesday.
• US Dollar Index extends consolidation near the 98.50 handle.  
• Bank of Japan’s governor says rates will remain very low at least through Spring 2020.

The USD/JPY pair struggled to find direction on Monday and fluctuated in a tight consolidation channel below the 108.50 handle before closing the day virtually unchanged amid the subdued trading action due to the Columbus Day holiday in the United States (US).

Risk aversion returns to the market

With the US bond markets returning to action on Tuesday, the pair edged lower pressured by the sharp drop in the 10-year US T-bond yield, which was last seen losing 2.5%.  The lack of clarity regarding the details of the “phase-one” trade agreement between the US and China seem to be forcing investors to readjust their positions following the decisive rally witnessed in the bond yields in the second half of the previous week.  As of writing, the pair was down 0.1% on the day at 108.27.

Earlier in the day, Bank of Japan (BoJ) Governor Kuroda said that the bank intends to keep the policy rate at “very low levels” at least through Spring of 2020. “We won’t hesitate to take additional easing steps if risks grow that momentum towards achieving price target will be lost,” Kuroda added.  

Despite the dismal market mood, however, Wall Street’s main indexes look to open the day in the positive territory as investors are getting ready for the third-quarter earnings figures. Earlier today, JPMorgan Chase reported a $2.68 earnings per share (EPS) to beat the market estimate of $2.45. Citigroup is also scheduled to announce its earnings later today.

Meanwhile, the US Dollar Index continues to move sideways near the 98.50 in the absence of significant macroeconomic drivers and allows the risk perception to continue to dominate the pair’s movements.

Technical levels to watch for