Fragile Sentiment, Greenback Sales Support Yen

Greenback sales in defence of EUR/USD parity helped USD/JPY move away from recent cycle highs on Tuesday, even as official communique issued post-Yellen/Suzuki meeting suggested that the odds of a coordinated FX intervention to prop up the yen remained slim.

• U.S. Tsy Sec Yellen emerged from a meeting with her Japanese counterpart Suzuki playing down potential for a coordinated FX intervention to prop up the yen. She expressed the view that "the G7 countries should have market-determined exchange rates," while an intervention is justified "only in rare and exceptional circumstances," and hence was not a subject of her talks with Suzuki.
• Risk aversion created a favourable backdrop for the yen. Performance from equity markets was mixed, with European benchmarks climbing into the green & U.S. counterparts sliding into the red. A softer commodity complex (notable downswing in BBG Commodity Index) may have helped keep the yen afloat, due to Japan's dependency on commodity imports.
• Spot USD/JPY held onto most of its initial losses even as the U.S./Japan 10-Year yield gap moved away from intraday narrows amid a recovery in U.S. Tsy yields in the wake of an underwhelming 10-Year offering.
• USD/JPY trades at Y136.79, down 8 pips on the day, with bears seeking a deeper sell-off towards initial firm support from Jun 23 low of Y134.27. Bulls look for a rally towards Jul 8 high/round figure resistance at Y137.75/138.00.
• Participants look ahead to the release of the final reading of Japan's industrial output on Thursday.