Japanese yen slips, NFP next

The Japanese yen has reversed directions and is down sharply on Friday. In the European session, USD/JPY is trading at 122.68, up 0.81% on the day.

All eyes are on US nonfarm payrolls, with an estimate of 490 thousand jobs. The reading could have a significant impact on the size of upcoming rate hikes – a print of 600K or higher will bolster the arguments for a series of 50-base point hikes.

Yen volatility continues

It has been a busy week for the yen, and there hasn’t been any letup today. USD/JPY jumped as high as 100 points today, as the dollar has recovered yesterday’s losses. This reversal in direction can be attributed in part to financial year-end repatriation flows. This led to the yen rising earlier in the week, but a reversal in the flows today has sent the yen lower.

The yen went on a roller-coaster ride this week, climbing as much as 300 points on Monday and hitting its lowest level in almost six years, as USD/JPY punched past the 125 line. The yen has since recovered, as the BoJ stepped in and defended the yield curve. The Bank can give itself a pat on the back and declare ‘Mission Accomplished’, as the 10-year JGB has dropped to 0.20%, below the BoJ’s red line of 0.25%. Still, I wouldn’t be surprised if the yen’s downswing resumes. The Japanese economy is not in good shape, and BoJ Governor Kuroda said this week that he is in favor of a low yen.

The thinking behind Kuroda’s stance is that a lower yen makes Japanese exports more competitive. That’s true, but the other side of the coin is that a weak yen has pushed up import costs and contributed to higher inflation. Although inflationary pressures pale in comparison to the US or the UK, household incomes are feeling the pinch of higher inflation and this has hurt consumer spending and confidence.

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USD/JPY Technical

• With USD/JPY rising sharply, 121.21 has some breathing room in support. 119.98 is the next support line.
• There is resistance at 123.32 and 124.55

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