The USD/JPY is on consolidated downtrend from last week Friday and the catalyst behind it could be weaker-than-expected consumer sentiment report, which drove U.S. Treasury yields sharply lower. It has swiped out all the previous gains of bullish U.S. Non-Farm payrolls report.  According to the University of Michigan, US consumer sentiment fell to its lowest level since December 2011. The move tightened the circulation between US government bonds and Japanese government bonds, making the US dollar a less attractive asset.

Yields were down 8 basis points at 1.287% on the key 10-year Treasury note. Yields on the 30-year Treasury bond fell 9 points to 1.937%. As per CNBC report consumer sentiment reading saw a dramatic drop in early August as the delta variant of COVID-19 increased fears about the path of the economy, the University of Michigan said on Friday. Wiping out the gains attributed to the bullish July Non-Farm Payrolls report suggests investors have already moved on from this data, and may be looking forward to weaker labor market data in August due to the reinstatement of mask mandates and other health restrictions in several states.

Federal Reserve Bank of Minneapolis President Neel Kashkari said in an interview with Bloomberg that the US Federal Reserve will allow the .S. central bank to begin winding down its bond-buying program, indicating that some more strong jobs reports in the coming months will indicate sufficient progress in recovering from the Covid. He noted, “If we look at some more job reports like the one we got, yes, we are – maybe the hole we were in was not completely filled – but we have made a lot of progress and now it’s time to start making our property purchases.

However, Kashkari said the central bank would eventually limit it to employment effects due to inflation, which could be achieved. “We do not have the capacity to target the black unemployment rate – and saying, ‘We need to get the Black unemployment rate to X, and we’re not going to be at full employment until we get it to X,’ because we have to pay attention to what that means for, on the inflation side of our dual mandate.”

On the other hand U.S. House Speaker Nancy Pelosi told lawmakers on yesterday that she had asked a House committee to advance both a $1 trillion infrastructure plan and a $3.5 trillion spending package together, an apparent effort to patch up divisions that had threatened to stall President Joe Biden’s legislative priorities. The U.S. Senate approved both the infrastructure legislation and the outline of a separate plan loaded with investments in new domestic programs. But the combined price tag of the two measures created fissures between the progressive and moderate wings of the Democratic Party, which controls both chambers of Congress by slim margins. Pelosi’s letter said her approach “will put us on a path to advance the infrastructure bill and the reconciliation bill.”

At the same time markets are awaiting fresh impulse for this week from US Retail Sales and the FOMC minutes.

USD/JPY 4 Hour Chart:

Support: 109.27 (S1), 108.95 (S2), 108.36 (S3).

Resistance: 110.18 (R1), 110.78 (R2), 111.10 (R3).

Amidst this above catalysts the US dollar is on sell-off mood now. We expect bearish trend for USD/JPY.