USD/JPY offered in Tokyo open on bearish start to the day

• USD/JPY bears are moving in during the bearish open in Tokyo equities. 
• Nikkei opens in a 0.8% gap to the downside ahead of the FOMC minutes on Wednesday. 

At 135.51, USD/JPY is some 0.25% at the equities open in Tokyo. The bears are lurking in a risk-off setting and lower US yields are supporting a bid in the yen. 

The yield on the US 10-year Treasury fell 6bps to 2.82% into the early Asian session although they are attempting to stabilise currently, at 2.818%. The Japanese yen outperformed all but the greenback overnight, with USD/JPY up just 20 pips to 135.85. Additionally, the US 10-year yield briefly dipped 1 bp below the two-year, the first inversion in about three weeks and one of several this year. Some observers argue that such an inversion is a timely signal that a recession is coming. The two-year to five-year yield spread turned negative Tuesday too.

It was a risk-off day on Tuesday with both global stocks and the commodity complex under pressure as recession fears intensified, supporting a bid in the US dollar and sending it to its highest level in two years. The fears were sparked by the Bank of England which said the outlook for the global economy has deteriorated materially and that volatility in the cost of energy and raw materials poses a significant risk of disruption that could amply economic shocks in the future, as noted by analysts at ANZ Bank in a note at the start of the Asian day. 

''Meanwhile, new rounds of COVID testing in Shanghai have increased fears of further lockdowns for China, which would then have a ripple effect on other markets,'' the analysts added.

Nevertheless, major US stock indexes turned around on Tuesday following a three-day holiday weekend after last Friday's sharp rally, as investors waited for economic data due later this week in Nonfarm Payrolls and ahead of today's Federal Open Market Committee minutes. For today, the Nikkei opened in a gap which leaves prospects for a rise in the yen also. 

As for the US calendar, US Nonfarm Payrolls is expected to show that Employment likely continued to advance firmly in June but at a more moderate pace after three consecutive job gains of around 400k in March-May, analysts at TD Securities said.

Minutes of the Federal Reserve's June meeting will also be eyed. ''Persistent high CPI inflation and nascent signs of de-anchoring inflation expectations forced the Fed to amp the pace of rate tightening. The meeting minutes are likely to offer further colour around the Fed's more hawkish reaction function,'' the analysts at TD Securities said.