USD/JPY remains defensive near 110.50 as US Treasury yields sinks

• USD/JPY prints minute gains and remains subdued despite the stronger US dollar.
• Lower US Treasury yields drag the pair lower as expectations of higher interest rate weakness on softer data.
• Yen remains grounded as risk sentiment deteriorates on renewed COVID-19 fears.

USD/JPY extends the previous day’s sluggish movement on Wednesday in the initial Asian trading hours. The pair lost its ground after testing the high of 111.67 on July 2 and continued to grind gains thereafter.

At the time of writing, USD/JPY is trading at 110.63, up 0.03% for the day.

The US Dollar Index (DXY), which measures the greenback performance against its six major rivals, trades higher at 92.54 with 0.36% gains.

Investors rushed to the US dollar ahead of the FOMC minutes of meeting as market volatility heightened amid risk off mood.

The US Treasury yields fell to their lowest level since February on Tuesday on the fears that economic recovery from the pandemic could be slowing.

The data from the Institute of Supply Management (ISM) revealed that US service industry activity fell in June, due to labor and raw material shortages. The ISM Non Manufacturing PMI dropped to 60.1 in June, much lower than the market expectations at 63.5.

The soft service data heighten the worries that the rapid pace of economic growth is nearing its end. This, in turn, added to the attractiveness of the US dollar.

On the other hand, the Japanese yen held the ground on its safe haven appeal as investor’s risk appetite dampens as rising coronavirus infection threatens the global economic recovery.

As for now, investors are waiting for the release of FOMC minutes of meeting to gauge the market sentiment.

USD/JPY additional levels