The Japanese yen has edged lower for a second straight day. Earlier on Friday, the US dollar pushed the yen to 111.99, just shy of the symbolic 112 level. With the US releasing nonfarm payrolls later today, we could see some stronger movement from USD/JPY.
Japan household spending slides
Japan’s economy continues to limp, as Covid has sapped economic activity and hurt the recovery. Household spending in August showed a sharper decline than expected, down 3.0% (YoY). This missed the consensus of -1.5%. This was also the fourth straight monthly decline, as wary consumers are keeping a tight thumb on the purse strings. The new Prime Minister, Fumio Kishida, will have an enviable task trying to right the shaky economy.
The financial markets are eagerly awaiting this week’s highlight, US nonfarm payrolls report. The key event has added significance ahead of a widely expected Fed taper, with the timeline for such a move still unclear. Fed policymakers would be more prone to a taper in December or even November if they can point to strong economic numbers, such as an increase in job creation. The consensus for the NFP report stands at around 500 thousand new jobs.
A non-farm payroll report of 500 thousand or more would raise expectations of an imminent taper and that should translate into a stronger US dollar. If the NFP falls short of expectations, however, the Fed would have an excuse to delay tapering and that would likely result in a rotation out of US dollars. Given this binary outcome, I expect a busy North American session for the US dollar.
- USD/JPY is testing resistance at 111.92. Above, there is resistance at 112.77
- There is support at 110.38, followed by 109.69.
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