Japan’s services sector extended declines in February for a 13th straight month, as the business activities was hit by many restraints which are put in place to stop the spread of the coronavirus pandemic, leading to the weak demand. The contraction was hit the services sector came as a state of emergency for Tokyo and three surrounding prefectures put in place in part to take pressure off the nation’s medical system is set to end on Sunday.

The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) came in at a seasonally adjusted 46.3, staying below the 50 level that separates contraction from expansion for the 13th month. The survey result, which compared to the prior month’s 46.1 and a preliminary 45.8 reading, was largely the result of a faster decline in new business and due to continuing contraction in export business.

Elsewhere, Board member Goushi Kataoka said that The Bank of Japan must lay out a new strategy for hitting its 2% inflation target at this month’s policy review, and will create warning the drag to growth from the COVID-19 pandemic could prolong price stagnation.

Kataoka said the pandemic’s hit to demand will likely delay Japan’s economic recovery and weigh on inflation expectations, which have been falling since the end of 2019. “If we see a repeated rise in infections, that would negatively affect both the output gap and inflation expectations. This, in turn, will prolong price stagnation,” Kataoka said in a speech.

On the other hand, Benchmark U.S. yields dipped on Tuesday for a third straight day after jumping to a one-year high last week, as the comments from two Federal Reserve officials failed to spark a move higher while investors look for a pickup in economic data later this week.

In a prepared comments, Federal Reserve Board Governor Lael Brainard said that while the U.S. economic outlook has markedly improved, the central bank “will need to be patient” before thinking about policy changes. However, Brainard also noted she is “closely watching the bond market” and would be concerned if the rise in yields continued.

USD/JPY 4 Hour Chart:

Support: 106.58 (S1), 106.48 (S2), 106.30 (S3).

Resistance: 106.87 (R1), 107.06 (R2), 107.16 (R3).

The shrinking of Japan’s s service sector weighs on the yen and we expect a bullish trend for USD/JPY.