Japanese yen drifts higher, US job numbers in focus

• US JOLTS Job Openings beats expectations
• US nonfarm payrolls follows on Friday
• Fed members divided on rate policy
• Debt ceiling agreement approved in House, moves to Senate

USD/JPY has edged higher on Thursday, trading at 139.66 in the European session. The yen has recovered after falling as low as 140.93 this week, its lowest level since November.

It has been a quiet week in Japan on the economic calendar, with no major releases. We could see stronger movement from USD/JPY on Friday, with the release of US nonfarm payrolls.

The US labour market remains strong, and Wednesday’s JOLTS Job Openings easily beat expectations, rising to 10.1 million. This was above the upwardly revised prior reading of 9.7 million and the consensus of 9.4 million. This is another indication that the labour market remains very strong, much to the frustration of the Fed, which can’t wrap up the current rate-tightening cycle until the labour market cools off. We’ll get a look at nonfarm payrolls on Friday, with the markets expecting a gain of 190,000, following from 253,000 prior. The NFP report will be doubly significant as the Fed meets next on 14 June.

Fed members remain divided on whether to hike or pause in June. Fed member Mester supports another rate hike and said on Wednesday that she did not see a “compelling reason to pause”, saying there was a strong case for hiking and then holding rates. On the opposite side, members Jefferson and Harker said on Wednesday that they supported a pause in June and basing future decisions on the data. Jefferson warned that the effects of tightening had not been fully processed by the economy and higher rates could increase stress on the banking sector.

The US House of Representatives approved the debt ceiling deal on Wednesday. The measure sailed through, by a vote of 314-117. The Senate is expected to vote on the bill later this week, with the government forecast to hit the debt ceiling by 5 June. The debt ceiling crisis sapped risk appetite and has helped the US dollar post broad gains against the majors. Fed member Loretta said that the deal removes a “big piece of uncertainty” about the economy. Once the deal becomes law, I expect risk sentiment to improve and that may put downward pressure on the US dollar.

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USD/JPY Technical

• USD/JPY is testing resistance at 139.61. Above, there is resistance at 140.80
• There is support at 138.50 and 137.92

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