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USD/JPY slides alongside Treasury yields. Tests 150.00

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USD/JPY 30 mins

The US dollar is under some pressure as Treasury yield sink. US 10-year yields are down 6.1 bps to 4.15%, which is the lowest since February 13. That drop is weighing on USD/JPY, which is down 49 pips to 105.02.

What is driving the move?

I’m tempted to point the finger at China. The market doesn’t like what it heard on Taiwan and increased military spending. Moreover, the consumer stimulus talk hasn’t been enough to boost Chinese equities with FXI down 1% in the premarket.

Risks are also high on the economic calendar with the ISM services report and factory orders data due at 10 am ET (1500 GMT). Here is BMO’s fixed income team ahead of the report:

Friday’s disappointing ISM Manufacturing data
has already called into question the sustainability of January’s economic
strength. As such, investors will be looking for any indication that a similar
weakness was evident in the services sector with all that implies about the
trajectory of the data in the coming weeks and months. For context, the
headline ISM Services index has indicated modest growth in business activity
for more than a year as the gauge has remained range-bound between 50.5 and
55.0 since the un-anticipated, brief drop below 50 in December 2022 (49.0 to be
precise). Sentiment is seen edging down to 53.0 in February from January’s
stronger-than-expected print of 53.4 – suggestive of continued business growth;
albeit at a slightly more measured pace versus what was seen to begin the year.
Within the details of the release, the Prices Paid component will come under
close scrutiny. Particularly because January’s unexpected spike to an 11-month
high of 64.0 was associated with an impressive acceleration of core services
inflation within the realized data. Another firm read on input costs would
further reinforce the FOMC’s reluctance to deliver near-term rate cuts and
wouldn’t be an encouraging development for the FOMC given the services sector
remains a stickier facet of the inflation complex.

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