USD/JPY finds support near 107.80, recovers to 108 on rebounding US T-bond yields

  • US Dollar Index posts small daily gains near 98.40.
  • 10-year US Treasury bond yield recovers from lows.
  • Wall Street looks to open the day modestly higher. 

The USD/JPY pair closed the day with modest losses near the 108 handle on Thursday and stretched lower during the Asian trading hours to 107.80 area. However, with the market sentiment recovering ahead of the American session, the pair retraced the majority of its daily losses and was last seen trading at 107.99.

Earlier today, the data published by Japan’s Statistics Bureau revealed that the National Consumer Price Index (CPI) in August fell to 0.3% on a yearly basis from 0.5%. However, the core CPI, which excludes food and energy prices, came in at 0.5% annually to beat the market expectation of 0.4%. On Thursday, Bank of Japan (BoJ) Governor Kuroda said that they wouldn’t hesitate to ease the monetary policy if they were to fail to hit the inflation target. 

Meanwhile, earlier today the BoJ announced that it reduced its purchases of government bonds with 5-10 years to maturity fo JPY 380 billion from JPY 400 billion. 

Risk-on flows start to dominate

On the other hand, citing a US Treasury aide familiar with talks, Bloomberg reported that US President Trump was not looking to make a “limited” trade deal with China to help the market sentiment improve. The 10-year US Treasury bond yield, which lost more than 0.5% earlier in the day, recently climbed into the positive territory.

Reflecting the upbeat sentiment that hurts the demand for safe-haven JPY, the Euro Stoxx 50 is up 0.5% on the day and the S&P 500 is posting modest gains to suggest that major equity indexes in the US could start the day higher.

The US economic docket won’t be featuring any significant macroeconomic data releases and the risk perception is likely to continue to drive the pair’s action.

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