The abrupt recovery appears overdone based on yield differentials but corroborates with gains in the Nikkei. The positive correlation between USD/JPY and the Nikkei has been a constant this year.

In the longer term, the path towards 1% for 10y JGB yields should compress the spread over Treasuries and Bunds and should translate into lower USD/JPY and EUR/JPY. 

Viewing the price action through the lens of technicals, the proverbial dam won’t burst until the 200-DMA at 136.66 gives way. 

The danger of a contrarian squeeze higher cannot be underestimated if US payrolls surprise to the upside on Friday and US 10y yields ratchet back over 4%. Three successive declines in US jobless claims reaffirmed the resilience of the labour market and could translate into a positive payrolls surprise and/or a lower unemployment rate. This would send a warning to investors to brace for another choppy month of August for bond markets.