The lack of upward movement in USD/JPY might be unsettling for bulls.

The pair briefly revisited 158.43 after reports of surging U.S. job openings and an above-forecast ISM non-manufacturing print for December. Despite a 6 basis point rise in Treasury 10-year yields, bringing them close to 2024 high, USD/JPY has since slid below 158, returning to a trading range that has been in place since the pair touched 157.80 after the Fed's December meeting.

Although rolling correlations show a strong relationship between USD/JPY and Treasury 10-year yields, this link may be weakening as yield curves flatten and focus shifts to potential changes in short-term policy rates. This shift appears to be impacting risk appetite on Tuesday and weighing on yen crosses.

There are several reasons to be yen bearish, including low real JGB yields, investment outflows from Japan in the new year, concerns over potential Trump tariffs, and rising U.S. yields as investors take on new issuance and hedge against inflation. Sentiment turned notably bullish USD/JPY after it surpassed 155 on the day of the December Fed meeting, sparking a dip-buying trend since then.

However, the risk-reward balance may not be currently in favor of bulls. Declining volatility, subdued yen carry due to BOJ rate expectations, and intervention risks above 158 help limit upside momentum. Asia investor flows help support USD/JPY though system accounts elsewhere are scooping up the cheaper yen.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))