Yen hovers just below 116

All eyes are on US nonfarm payrolls, perhaps the monthly highlight on the economic calendar. An interesting prelude to nonfarm payrolls was the ADP employment report on Wednesday. ADP is not a reliable indicator for the NFP, but it always garners a fair degree of attention, coming just before the nonfarm payrolls release.

The December ADP delivered a massive overperformance, to the tune of 807 thousand new jobs, crushing the forecast of 400 thousand. Such a miss to the upside could not be ignored, prompting Goldman Sachs to revise upwards its estimate for NFP from 450 thousand to 500 thousand. Still, the consensus is around 425 thousand, so unless it falls below 250 thousand or rises above 550 thousand, I don’t expect the markets to react and shake up the US dollar. A weak reading could delay a Fed rate hike and would drive a risk-on mood. Conversely, a strong release would support an earlier Fed hike and would be bullish for the US dollar.

Japan’s consumers hold tight to purse strings

In Japan, consumers cut back on spending in November. Household Spending declined by -1.3% y/y, the first drop in three months. With the economy showing signs of improvement, analysts had projected a 1.2% gain. The negative reading is particularly worrying as consumption fell before the rapid spread of Omicron in December. If consumer spending also fell in December, it will throw a wrench in the government’s plans to kickstart economic growth. The government is pushing companies to raise wages but businesses will be reluctant to do so if consumers hold tight to the purse strings.

The Japanese yen finds itself at 5-year lows against the greenback, courtesy of rising US Treasury yields. The 10-year yield, which finished 2021 above the 1.50% level, hasn’t missed a beat in the first week of 2022 and has risen to 1.73%. The widening US/Japan rate differential has been weighing on the yen, which is extremely sensitive to the rate differential. If US yields remain high, we could see USD/JPY break past the 118 mark over the coming weeks.


USD/JPY Technical

  • USD/JPY continues to put pressure on resistance at 115.78. Above, there is resistance at 116.34
  • There is support at 114.54 and 113.98

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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