Yen rally fizzles as US dollar climbs

The Japanese yen is sharply lower on Monday after stringing together a three-day rally.  USD/JPY is trading at 153.92, up 0.62% at the time of writing.

The yen took traders on a roller-coaster ride last week. The Japanese yen fell below the 160 level on Monday, setting another 34-year record before recovering. On Wednesday, the yen climbed 2.1% and on Friday it strengthened to 151.85, a one-month high against the US dollar.

The sharp swings on Monday and Wednesday were likely caused by intervention from Japan’s Ministry of Finance (MoF). To no one’s surprise, the MoF wouldn’t comment on whether it had intervened. US Treasury Secretary Yellen also declined to say whether Tokyo had intervened, but Bank of Japan current account data indicated that the Japanese government may have bought up $60 billion to support the ailing yen.

Previous interventions by the MoF haven’t been effective, providing only a brief boost for the yen. With the Fed signaling that it won’t rush into cutting rates, the US/Japan rate differential isn’t narrowing and that will likely mean that the yen will resume its depreciation.

US nonfarm payrolls ease to 175,000

The US economy added 175,000 jobs in April, down from the upwardly revised 315, 000 in March and below of the market estimate of 240,000. This points to a slowdown from the strong job growth which marked the first quarter. Unemployment and wage growth were also down compared to March, and the somewhat soft employment report makes a September rate cut more likely.

The Fed’s rate path will be data-dependent, with a focus on inflation, consumer spending and GDP. At least week’s meeting, Fed Chair Powell said high inflation remained a concern but indicated that the Fed still planned to lower rates.

USD/JPY Technical

• USD/JPY is testing resistance at 153.92. Above, there is resistance at 154.87
• There is support at 152.90 and 151.95

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