USD/JPY Consolidates Near 1.4460 Amid Cautious Market Sentiment

During the early hours of Tuesday morning in Europe, the USD/JPY currency pair is showing signs of fading the recovery made the previous day, hovering around 144.60. This indicates a cautious market sentiment due to the US Independence Day holiday and mixed investor outlooks.

It is noteworthy that the recent decline in the Yen pair can be attributed to concerns over potential market intervention by Japan to defend its domestic currency, especially as it trades near eight-month highs. Additionally, the inversion of US Treasury bond yields, signaling fears of a recession, poses a challenge for USD/JPY buyers.

Japanese Finance Minister Shunichi Suzuki stated on Tuesday that he is closely coordinating with the US on foreign exchange matters at the vice-ministerial level. Furthermore, Masato Kanda, Japan's top currency diplomat, mentioned that he is engaging in communications with various countries, including the US, regarding currencies.

Meanwhile, the inversion between the US 10-year and two-year Treasury bond yields reached its highest level since 1981, renewing concerns about an economic downturn. Reuters reported that the yield curve briefly reached its lowest point in 42 years on Monday, as investors increasingly expect the Federal Reserve to raise interest rates to control inflation. The two-year Treasury bond yields dropped to 4.85%, while the 10-year counterpart fell to 3.78%. It is important to note that both of these benchmark yields closed Monday's trading session at approximately 4.93% and 3.86%, respectively.

On the other hand, downbeat US data is pushing US Dollar bulls, but negative market sentiment is allowing the greenback to grind higher during the holiday period. The US ISM Manufacturing PMI for June dropped to its lowest level in three years, remaining below the 50.0 level for the seventh consecutive month, with a reading of 46.0 compared to the expected 47.2 and the previous figure of 46.9. Additionally, the S&P Global Manufacturing PMI for June confirmed a figure of 46.3, the lowest in five months. However, Construction Spending in May improved by 0.9% month-on-month, surpassing expectations of 0.5% and the previous reading of 0.4%.

Against this backdrop, although Wall Street managed to post minor gains, S&P500 Futures are retreating.

Looking ahead, the US holiday will restrict immediate movements in USD/JPY. Moreover, concerns of market intervention may temper the bullish bias despite expectations of a hawkish stance from the Federal Reserve, favoring a 0.25% rate hike in July.