USD/JPY climbs to 14-month high

The Japanese yen continues to lose ground on Thursday. In the European session, USD/JPY is trading at 111.58, up 0.42% on the day. The pair is currently at its highest level since March 2020.

Tankan manufacturing index accelerates

Japan’s Tankan indices for the second quarter showed improvement in the second quarter. The Manufacturing Index rose to 16, up sharply from 5 in Q1 and ahead of the consensus of 14 points. This positive reading was dampened by the forward-looking outlook index, which found that manufacturing firms expected conditions to worsen. However, outside the manufacturing sector, the gains were much more modest. The Non-Manufacturing Index rose to +1, up from -1 and shy of the forecast of +3. This reading was barely over the pessimism/optimism threshold of zero.

The survey projected that GDP would be flat in Q2 and growth for 2021 would be 2.2%. This projection was made prior to the current wave of Covid, which has resulted in health restrictions being introduced. This will delay the reopening of the economy and could well mean that these GDP forecasts will have to be revised downwards.

In the US, the focus is on employment numbers. The ADP Employment report was solid, with a gain of 692 thousand, ahead of the estimate of 600 thousand. Still, this was considerably lower than the previous reading of 886 thousand. The consensus for the official NFP release stands at 700 thousand, compared to the May reading of 559 thousand.

Investors will also be keeping a close eye on US wage growth. The estimate for June YoY is a strong gain of 3.7%, compared to the May reading of just 2.0%. With many jobs lying vacant, employers have raised wages in hopes of luring workers to fill jobs. If wages jump sharply, we could see upcoming inflation numbers also rise, which is sure to get the attention of the Federal Reserve.

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USD/JPY Technical

• USD/JPY is testing resistance at 111.36. Above, there is resistance at 111.94
•  On the downside, there is support at 109.96, followed by support at 109.14

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