USD/JPY retreats to 109.50 area as US T-bond yields turn south

• USD/JPY edges lower in the early American session.
• 10-year US Treasury bond yield is nearly losing 1%.
• US Dollar Index moves sideways near 92.00, eyes on PMI data.

After spending the first half of the day moving sideways around 109.70, the USD/JPY pair came under renewed bearish pressure in the last hour and was last seen losing 0.18% on the day at 109.50.

Falling US Treasury bond yields seem to be causing USD/JPY to edge lower ahead of high-tier macroeconomic data releases from the US. The benchmark 10-year US T-bond yield, which lost 3.5% on Friday, is currently at its lowest level in more than 10 days at 1.217%, down 0.75% on the day.

Inflation expectations to impact USD's performance

In the meantime, the US Dollar Index is moving sideways near 92.00 on Monday as investors await the IHS Markit's and the ISM's Manufacturing PMI data for July. Both of these reports are expected to show ongoing expansion in the economic activity of the US manufacturing sector at a robust pace. However, market participants will keep a close eye on the underlying details with regard to input price pressures. In case these publications revive concerns over inflation staying high for longer than expected, the USD could outperform its rivals and allow USD/JPY to stage a rebound.

On the other hand, S&P Futures and Nasdaq Futures are up 0.35% and 0.45%, respectively. In case risk flows remain in control of financial markets, USD/JPY could find it difficult to make a decisive move in either direction in the second half of the day.

On Tuesday, Tokyo Consumer Price Index data from Japan will be looked upon for fresh impetus.

Technical levels to watch for