- The USD/JPY pair is down for the fourth day in a row and has reached its lowest level in over a month.
- Diverging policy expectations between the Fed and the BoJ are proving to be a key factor exerting downward pressure.
- Bears take a break for a while and then monitor the US NFP report before taking positions for further losses.
USD/JPY remains under selling pressure for a fourth straight day and is down to a more than one-month low around the 142.00 round on Friday. However, spot prices trimmed some intraday losses and returned above the 142.00 mid-point in the first half of the European session amid some repositioning ahead of key monthly US employment data.
The much-hyped Nonfarm Payrolls (NFP) report will play a key role in shaping expectations for the Federal Reserve’s (Fed’s) policy path and will drive demand for the US dollar (USD). However, any significant recovery in the USD/JPY pair seems elusive amid diverging Fed-Bank of Japan (BoJ) policy outlooks. In fact, markets are pricing in a 40% chance that the US central bank will cut borrowing costs by 50 basis points (bps) at the end of its September 17-18 policy meeting.
The bets were bolstered by rather unimpressive U.S. macroeconomic data released this week, which pointed to a cooling labor market and suggested the economy was at risk of a slowdown. BoJ Governor Kazuo Ueda reiterated earlier this week that the central bank would continue to raise interest rates if the economy and prices performed as expected. In addition, an unexpected rise in real wages in Japan for a second straight month in July keeps the BoJ on track for another rate hike in 2024.
In addition, renewed concerns about a US economic slowdown, along with ongoing geopolitical tensions, could continue to support the safe-haven JPY and lend a hand limit the USD/JPY pair’s gains. Hence, any significant recovery attempt could still be seen as a selling opportunity and risk expiring quite quickly. Nevertheless, spot prices remain on track for gigantic weekly losses and appear vulnerable to extending their nearly two-month-long downtrend.
Economic indicator
Non-farm wages
The Nonfarm Payroll Report shows the number of modern jobs created in the United States during the previous month by all nonfarm payroll establishments; it is published by U.S. Bureau of Labor Statistics (BLS). Monthly changes in payrolls can be extremely volatile. This number is also subject to mighty revisions, which can also cause volatility on the Forex board. Generally speaking, a high reading is seen as bullish for the US dollar (USD), while a low reading is seen as bearish, although revisions from previous months and the unemployment rate are just as critical as the headline number. The market reaction therefore depends on how the market evaluates all the data in the BLS report as a whole.
