Japanese yen slips below 140 after US nonfarm payrolls

• US nonfarm payrolls surges to 339,000
• Japan releases household spending and average cash earnings early Tuesday

USD/JPY has drifted lower on Monday and is trading at 139.65, down 0.23%. The yen fell close to 1% on Friday after a sizzling US nonfarm payrolls report.

Japan’s economy has been showing signs of recovery, notably in manufacturing and services, where the May PMIs accelerated and beat the forecasts. Will the positive news continue this week? On Tuesday, Japan releases household spending for April, which is expected to improve to -0.9% y/y, up from -1.9% in March. Average cash earnings for April are projected to inch higher to 0.9% y/y, up from 0.8% in March.

The yen has been flirting with the key 140 level and pushed close to the 141 line last week. The decline in the yen triggered a warning from the Ministry of Finance (MOF), in what can be described as verbal intervention. The MOF held an unscheduled meeting last week and warned that “excessive moves aren’t desirable”. The last time the MOF intervened in the currency markets was last October when the yen fell below the 150 line. The yen is nowhere near those levels, but the MOF wants to remind the markets and especially speculators that it is keeping a close eye on the yen’s movement.

US delivers mixed jobs report

On Friday, the US nonfarm payrolls report sailed out of the ballpark, with a reading of 339,000. This crushed the estimate of 195,000 and followed an upwardly revised April reading of 294,000. The payrolls report showed that hiring and job growth remain resilient.  However, this is not the whole story. The unemployment rate surprised to the upside, rising from 3.4% to 3.7%, while wage growth ticked lower to 0.3%, down from 0.4%.

The takeaway from the jobs report is that employment growth is robust but the labour market is also showing signs of cooling down, which is what the Fed desperately needs to wind up the current rate-tightening cycle. If the Fed chooses to focus on the softer portions of the employment report, it could be enough for the Fed to take a pause at the meeting next week, after ten consecutive rate increases. The markets are betting on a pause at next week’s Fed meeting, with a 79% probability that the Fed will hold rates at 5.00-5.25%.

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USD/JPY Technical

• USD JPY is testing support at 139.79. Below there is support at 138.64
• There is resistance at 141.11 and 142.26

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