USD/JPY inter-market: US treasury yields and fear index justifies a dip below 107.00

After falling to its lowest level since Oct. 2014 in the earliest part of May, the USD/JPY pair has been rising in tandem with rise in US 10-year yield. The release of hawkish April Fed meeting minutes raised expectations of an imminent Fed rate-hike, as early as June, and drove the 10-years yield higher alongside the USD/JPY pair. 

Also, expanding yield spread between the US and Japanese 10-year bonds further boosted the USD/JPY pair. The USD/JPY pair climbed higher in May despite of a reasonable up-tick in the fear index, VX. 

However, the US 10-year nose-dived after awful May jobs report that dampened expectations of Fed rate-hike in the near-term. The USD/JPY pair maintained its strong correlation with the US treasury yield and fell sharply before finding a balance area around 106.50 region.

From a multi-week low level of 106.50, the pair has managed to stage a recovery and has been inching higher and the move is again supported by a mild recovery in US 10-year treasury yields. Moreover, decline in the fear-index (VX) also supported a minor risk-on bounce for the pair.  

A sudden up-tick in the fear-index just ahead of the US session, coupled with a slide in 10-year yield, seems to justify a fresh bout of selling pressure for the pair, dragging it back below 107.00 handle.