USD/JPY falls to a two-month low at 131.50 due to declining yields and recession worries
The USD/JPY halts its four-day decline around the lowest levels since the beginning of June. Yields continue under pressure as worries of a "technical recession" and divided views regarding the Fed's future steps persist. JPY strength is also supported by the expected increase in Japan's minimum wage. Fedspeak and China-related headlines might amuse traders.

During Tuesday's Asian session, USD/JPY bears maintain control at the lowest levels in eight weeks as the pair flirts with the 131.50 mark. Recent weakness in the pair may be attributable to negative rates and recent favorable news on Japan, not to mention contradictory Fed and China-related rhetoric.
US 10-year Treasury rates reached a four-month low of about 2.58 percent the day prior, as US economic data heightened worries of a downturn. As traders awaited the release of crucial US employment statistics for July on Friday, the dollar sank. In spite of this, the US Dollar Index (DXY) fell to a new monthly low before rebounding off 105.25 on Monday.
In July, the US ISM Manufacturing PMI fell to its lowest level since January 2020, as the activity index fell from 53.0 to 52.8. However, the actual statistics exceeded the market prediction of 52.0. Additionally, final readings of the US S&P Manufacturing PMI fell below early forecasts of 52.3 to 52.2, compared to 52.7 before. In addition, Germany's Retail Sales fell 8.8 percent year-over-year in June, compared to a market estimate of -8.0 percent and a preceding decline of -3.6 percent.
It should be mentioned that the second straight quarterly fall in US Gross Domestic Product (GDP) sparked a "technical recession" and weighed on the US dollar over the previous week. Fed Chair Jerome Powell's oblique warnings that the hawks are losing momentum were in the same vein.
On a separate page, Reuters cites three persons familiar with the situation as saying that US House of Representatives Speaker Nancy Pelosi was scheduled to visit Taiwan on Tuesday, despite Chinese warnings to never "sit idly by" if she made the trip to the self-governed island claimed by Beijing.
At home, rumors of a rise in Japanese salaries and challenges to the Bank of Japan's (BOJ) cheap money policies appeared to have submerged the USD/JPY exchange rate, perhaps due to widespread inflation worries. Recent reports from Nikkei indicate that the average minimum wage in Japan would increase by a record 3,3 percent in the fiscal year ending in March 2023. The story also stated, "A Japanese panel is attempting to increase the average minimum wage by 31 yen."
Wall Street finished with modest losses, but 10-year Treasury rates reached a four-month low of around 2.58 percent. In spite of this, as of press time, the S&P 500 Futures show modest losses of roughly 4,120.
In the near future, the remarks of Chicago Fed President Charles L. Evans and Federal Reserve Bank of St. Louis President James Bullard will influence the path of the USD/JPY.
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