USD/JPY inter-markets: slight deterioration in risk-appetite would open room for further downslide

The USD/JPY snapped its two-day recovery momentum led by last week's robust jobs report and has now dropped back to pre-NFP level to currently trade around 101.00 handle.

The greenback witnessed a broad based selling pressure after Tuesday's data showed US productivity unexpectedly declined for third straight quarter, which forced investors to reassess possibilities of an eventual Fed rate-hike this year. The worries is clearly reflected by drop in the CME group's Fed fund futures, which currently shows less than 15% probability of such an action until November. 

Moreover, downtick in the US and Japanese 10-years Treasury bond yields is pointing to slight deterioration in investors' risk appetite. Adding to this, weakness in equity market is providing an additional boost to the perceived safety of the Japanese Yen, exerting further selling pressure around the USD/JPY major. However, the Volatility Index (VIX), near multi-year lows, has been defying the risk-off sentiment.

Stop-loss selling orders accompanied with dollar selling by Japanese exporters ahead of summer holidays in Japan could have intensified the selling pressure around the USD/JPY pair. In absence of any major economic releases until Friday's US monthly retail sales data, the major might continue to be solely driven by expectations of the Fed’s action. Meanwhile, a sudden spurt in VIX might lead to a global risk-off trade and trigger a fresh leg of downfall for the major.