- USD/JPY continues losing ground for the fourth straight day and drops to over a one-month low.
- The divergent Fed-BoJ policy expectations turn out to be a key factor exerting downward pressure.
- Bears take a brief pause and now look to the US NFP report before positioning for further losses.
The USD/JPY pair remains under some selling pressure for the fourth straight day and drops to over a one-month low, around the 142.00 round-figure mark on Friday. Spot prices, however, trim a part of intraday losses and climb back above mid-142.00s during the first half of the European session amid some repositioning trade ahead of the crucial US monthly employment details.
The popularly known Nonfarm Payrolls (NFP) report will play a key role in influencing expectations about the Federal Reserve's (Fed) policy path and drive the US Dollar (USD) demand. Any meaningful recovery for the USD/JPY pair, however, seems elusive in the wake of divergent Fed-Bank of Japan (BoJ) policy outlook. In fact, the markets are pricing in a 40% chance that the US central bank will lower borrowing costs by 50 basis points (bps) at the end of the September 17-18 policy meeting.
The bets were reaffirmed by rather an unimpressive US macro data released this week, which pointed to a cooling labor market and suggested that the economy is at risk of a slowdown. In contrast, BoJ Governor Kazuo Ueda reiterated earlier this week that the central bank will continue to raise interest rates if the economy and prices perform as expected. Furthermore, an unexpected rise in Japan's real wages for the second straight month in July keeps the BoJ on track for another rate hike in 2024.
Apart from this, renewed worries about a US economic downturn, along with persistent geopolitical tensions, might continue to underpin the safe-haven JPY and contribute to capping the upside for the USD/JPY pair. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and run the risk of fizzling out rather quickly. Nevertheless, spot prices remain on track to register heavy weekly losses and seem vulnerable to prolonging a nearly two-month-old downtrend.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in 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 previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.Next release: Fri Sep 06, 2024 12:30
Frequency: Monthly
Consensus: 160K
Previous: 114K
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
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