USD/JPY outlook

 

Despite a small bounce on Wednesday, USD/JPY has been correcting lower in recent days, mirroring the drop in US Treasury rates. 

Weakening US economic data and rising recession fears may undermine the US dollar against the Japanese yen in the coming days and weeks, according to the tight positive correlation between the USD/JPY and the US 10-year yield, and the US dollar may continue to weaken if Treasury rates continue to fall. Despite today’s modest gain, the pair has fallen from 128.20 to 127.15 in the last three days, a retreat that has coincided with the 10-year yield falling from 2.85 percent to 2.72 percent at the time of writing.

The Japanese yen appears to be in a better position to extend its recovery against the US dollar in the coming days and weeks, with the US recession narrative strengthening, Treasury rates pulling back from recent highs, Wall Street in free fall, and risk-off sentiment on the rise. 

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