USD/JPY is flirting with the 135.00 level after briefly touching below. The pair corresponds closely with Treasury yields but lately a wide divergence has opened up.

USDJPY vs 10y yields

There's no doubt that Fed hiking expectations have diminished with Fed funds down more than 75 bps in the last three weeks.

So what's happening here? My guess is that it relates back to the euro. There's a flight out of euros on recession fears and I think that money is chasing the momentum in dollars rather than the usual mix of currencies, including the yen. The sharp fall in JPY this year and yield-curve control has made it a no-go zone for foreign investors.

So is it time to sell USD/JPY?

I think some further retracement is warranted. The pair may be slowly topping here but unless the BOJ offers a catalyst, I'd be wary of a convergence trade. The market psychology around the yen is dampened and even Japanese investors aren't rushing to buy in times of market turmoil.

In short, the yen may truly be losing its position as the chief safe-haven asset.

USDJPY daily July 6