USD/JPY steadies below 106 as US T-bond yield slump stalls

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  • 10-year US T-bond yield looks to close more than 5% lower.
  • Wall Street’s main indexes all lose more than 2% on Wednesday.
  • US Dollar Index advances to 98 to limit pair’s losses.

The USD/JPY pair retraced a large portion of Tuesday’s impressive rally today and now looks to close the day below the 106 mark. As of writing, the pair was down 0.73% on the day at 105.94.

The positive impact of the Trump administration’s decision to delay additional tariffs on some Chinese imports on the market sentiment faded away today amid revived concerns over a global economic slowdown. Both retail sales and industrial production data from China fell short of market expectations and Destatis reported a 0.1% contraction in Germany economy in the second quarter.

Risk-aversion dominates markets on Wednesday

The flight-to-safety forced the 10-year US Treasury bond yield to fall sharply and caused an inversion with the 2-year T-bond yield curve for the first time since 2007. Although the yield slump seems to have stalled in the last hours, the 10-year T-bond yield remains on track to close the day with a loss of more than 5%. Stock markets reacted negatively to this development, which is seen as a sign of an upcoming recession, and all three main indexes of Wall Street are down around 2.5% on the day.

The traditional safe-haven JPY capitalized on the risk-off flows and gathered strength against its rivals. In fact, the EUR/JPY pair is now down 1.05% on the day at 118.

On the other hand, the US Dollar Index gained traction despite the sharp fall witnessed in the T-bond yields as the Greenback posted strong gains versus the euro and other risk-sensitive currencies. At the moment, the US Dollar Index is at its highest level since August 5 at 98, limiting the pair’s losses for the time being.

During the Asian trading hours on Thursday, industrial production from Japan will be looked upon for fresh impetus but the market’s risk perception is likely to continue to drive the pair’s action.

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