USD/JPY stays firm around 135.70s despite a strong US dollar

• The USD/JPY seesaws in a 100 pip range on Tuesday, limited by a mighty US dollar and falling US Treasury yields.
• Risk-off impulse increased appetite for safe-haven assets, with the greenback taking the upper hand.
• US Treasury yields drop more than 13 bps and are back below 2.80%.

The USD/JPY is almost unchanged in a trading session dominated by risk aversion, triggering flows toward safe-haven assets, and in the FX space, the USD, the JPY, and the CHF are the winners. Nevertheless, due to its risk-off nature, the USD/JPY is barely up 0.07%, trading around the 135.70s area.

USD/JPY range-bound capped by factors that boosts both currencies, to remain steady

Recession and high inflation worries are the headlines of the session. That said, European and US equities tumbled while safe-haven flows dominated the session, with the US Dollar Index, which pairs the greenback vs. six currencies, gaining 1.50%, sitting at 106.716. in the meantime, the USD/JPY seesawed in the 135.50-136.40 area during the day, within familiar ranges.

On the downside, the USD/JPY was capped by the strength of the greenback, but on the upside, falling US Treasury yields, mainly the US 10-year Treasury yields, are nose-diving thirteen basis points, sitting at 2.794%, well below the 3.50% YTD high.

In the meantime, Tuesday’s Asian Pacific session’s upbeat mood spurred by talks between US/Chinese officials was short-lived. Despite newswires stating that US President Biden is expected to roll back tariffs on Chinese imports soon, it could not overshadow the looming stagflation scenario in the worldwide economy.

In the meantime, the Japanese economic docket featured the Jibun Bank Services and Composite PMIs, for June, which showed the economy’s resilience, printing better than expected figures. Across the pond, the US calendar featured positive data, with Durable Goods Orders and Factory Orders beating forecasts.

Later in the week, an absent Japanese economic docket will leave USD/JPY traders adrift to US data. The US macroeconomic calendar will reveal the ISM Non-Manufacturing PMIs, JOLTs Job Openings, and FOMC Minutes. Furthermore, Fed officials will be crossing newswires, led by the New York Fed President John Williams on Wednesday, while Christopher Waller and the St. Louis Fed President Bullard on Thursday.

USD/JPY Key Technical Levels