- USD/JPY continues losing ground for the fifth straight day and drops to a nearly two-month low.
- The narrowing US-Japan yield spread, the cautious mood underpins the JPY and exerts pressure.
- A modest US bounce from its lowest level since July 5 offers support to the pair, at least for now.
The USD/JPY pair extends its decline for the fifth straight day and drops to a nearly two-month low on Tuesday. Spot prices, however, find some support ahead of the 100-day SMA and bounce back to the 131.00 mark during the early European session.
Despite a more dovish stance adopted by the Bank of Japan, the recent yield compression globally makes the Japanese yen more attractive. It is worth recalling that the Federal Reserve last week hinted that it could slow the pace of the rate hike campaign at some point. Furthermore, the Advance US GDP report released last Thursday confirmed a technical recession and fueled speculations that the Fed would not hike rates as aggressively as previously estimated. This, in turn, drags the yield in the benchmark 10-year US government bond to its lowest level since April. Conversely, the Japanese government bond yields aren’t moving because of the BoJ’s yield curve control policy.