USD/JPY was available at the Tokyo open with a negative outlook

Tokyo's equity market opens with USD/JPY at 135.51, up 0.25 percent. Bears lurk in a risk-off environment, and lower US rates are encouraging yen demand.

In the early Asian session, the yield on the US 10-year Treasury declined 6 basis points to 2.82 percent, however it is presently seeking to stabilize around 2.818 percent. Overnight, the Japanese yen beat all currencies save the US dollar, with USD/JPY increasing by only 20 basis points to 135.85. In addition, the US 10-year yield momentarily fell 1 basis point below the two-year yield, marking the first inversion in almost three weeks and one of several this year. Some analysts argue that such an inversion is a timely indicator of an impending economic downturn. Tuesday also saw the two-year to five-year yield spread become negative.

Tuesday was a day of risk aversion, with both global markets and the commodities complex under pressure as worries of a recession grew, boosting the US dollar to its highest level in two years. The Bank of England stated that the outlook for the global economy has materially deteriorated and that volatility in the cost of energy and raw materials poses a significant risk of disruption that could amplify future economic shocks, as analysts at ANZ Bank noted at the start of the Asian trading day.

Analysts noted, "In the meantime, additional rounds of COVID testing in Shanghai have fuelled worries of more lockdowns in China, which would have a rippling impact on other markets."

In spite of this, major US market indices reversed course on Tuesday following a three-day holiday weekend and a significant gain on Friday, as investors awaited economic data anticipated later this week in Nonfarm Payrolls and ahead of today's Federal Open Market Committee minutes. Currently, the Nikkei began with a gap, which bodes well for a rise in the yen.

According to experts at TD Securities, the US Nonfarm Payrolls report is expected to reveal that employment continued to grow strongly in June, but at a slower rate than the roughly 400k jobs added in March through May.

The Federal Reserve's June meeting minutes will also be reviewed. The Fed increased the rate of rate tightening in response to persistently high CPI inflation and early evidence of de-anchoring inflation expectations. The meeting minutes will likely shed further light on the Fed's more hawkish response function, according to analysts at TD Securities.