Japanese yen extends losses ahead of nonfarm payrolls

• Japanese yen continues to slide
• US nonfarm payrolls expected to ease to 170,000

The Japanese yen continues to lose ground and is down for a fourth straight day on Friday. In the European session, USD/JPY is trading at 145.14, up 0.36%.

The US dollar took a nasty spill in December against the major currencies. USD/JPY plunged 4.8% in December as the Fed made a major pivot and said that it planned to lower rates three times in 2024. Somewhat surprisingly, the US dollar has rebounded sharply against the majors in the first week of January and has surged 2.9% against the yen.

The markets are expecting the Fed to slash rates up to six times this year but there was some disappointment from this week’s FOMC minutes, as the Fed didn’t provide any details as to the timing of any rate cuts. The markets have priced in a rate cut by March at around 65%, considerably lower than the 85% probability just one week ago. Still, the markets are confident that the Fed has reached its peak rate and the minutes essentially confirmed this. The key question is when the Fed will start to trim rates, and inflation and employment releases will play a key role in the Fed’s decision-making.

US nonfarm payrolls projected to decelerate

The markets are anxiously waiting for the first US employment release of the year. The consensus estimate for the December report stands at 170,000, up from 199,000 in November. The markets will be keeping an eye on wage growth, which is projected to ease to 3.9% y/y, compared to 4.0% in October. This would mark the lowest annual gain since mid-2021. The Fed would like to see wage growth ease as it is a driver of inflation.

The Fed is hoping it can guide the economy to a soft landing, in which the economy cools down without a jump in unemployment. So far the plan has worked and the labour market has softened but remains resilient, despite the Fed’s aggressive rate-tightening cycle. A slight drop in today’s nonfarm payrolls report will please the Fed but is unlikely to shed any light on the timing of a rate cut.

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USD/JPY Technical

• USD/JPY pushed above resistance at 1.4480 and is testing resistance at 1.4537. Above, there is resistance at 1.4610
• There is support at 144.11 and 143.38

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