USD/JPY holding its own just below 106 the figure in Tokyo's opening hour

USD/JPY traders in Asia are soaking up the mood from overnight and sitting on their hands in choppy market conditions. USD/JPY is virtually unchanged on the session with a bearish tendency, albeit the Nikkei is opening with a bid, up 0.32% so far. 

USD/JPY is currently trading at 105.90 following a drift to the downside from the lofty heights of the 107 handle. European and US trade were both heavily risk-off following another poor data print from the eurozone and inverted yields in both the UK and US curve. 

"Eurozone July industrial production missed weak expectations on m/m basis (-1.6%m/m, est. -1.5%m/m), but data revisions meant that there was a sharp miss in the annual level at -2.6%y/y (est. -1.5%), with Eurostat citing weak capital goods production and highlighting weak production in Germany. This overshadowed the as expected Q2 Eurozone GDP (+0.2%q/q, +1.1%y/y). Q2 GDP in Germany (-0.1%q/q as est., +0.4%y/y vs est. +0.1%y/y) had minimal market impact," 

analysts at Westpac explained. 

As for yields, the focus was on US 2-10'year yield inversions. The US 2-year treasury yields fell from 1.66% early Sydney to 1.56%, the 10-year yield fell from 1.69% to 1.58% which was the lowest since 2016:

"The difference between the 2yr and 10yr rates is the smallest since 2006 (it briefly reached -2bp overnight – unnerving some investors who interpret such inversion as a signal of recession ahead). The 30-year bond yield tumbled from 2.16% to 2.02%. Markets are pricing 33bp of easing at the 19 September Fed meeting, and a terminal rate of 1.04% (Fed funds rate currently 2.13%),"

analysts at Westpac explained. 

US crash hard and USD/JPY responds in kind

Subsequently, the Dow Jones Industrial Average closed at session lows with the recession fears penetrating their way through and lost 800 points, or ended 3.1%, lower at 25,479. As for the S&P 500 index, it closed heavily in the red as well, down 2.9% at 2,841. The Nasdaq Composite Index dropped 3% lower to close at 7,773. Consequently, USD/JPY extended its Sydney session decline from 106.80 to a low of 105.66, the yen the best performer on the day.

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair recovered from a daily low of 105.64 but remains below 106.00 ahead of the Asian opening, hovering around 105.90:

"In the 4 hours chart, the decline stalled just above a now directionless 20 SMA, while technical indicators neared neutral levels from where they are currently bouncing. Despite the ongoing risk aversion, the pair is not giving signs of a bearish extension, at the time being, although chances of a recovery in the current scenario are quite unlikely. The daily low was set at 105.64, providing an immediate short-term support, and a break below it will likely result in additional slides toward the 105.00 figure."