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USD/JPY Forecast: US Non-Farm Payrolls Report Sets the Tone

By:
James Hyerczyk
Updated: Jun 2, 2023, 06:36 GMT+00:00

Non-Farm Payrolls report holds key importance for USD/JPY exchange rate and Fed's policy.

USD/JPY

In this article:

Highlights

  • Dollar rebounding after hitting lowest level since May 24.
  • Debt ceiling bill passage removes support for the safe-haven Japanese Yen.
  • Non-Farm Payrolls report and Fed’s interest rate decision hold significance.

Overview

The Dollar/Yen has experienced fluctuations in recent days, with the Dollar rebounding after hitting its lowest level since May 24. Traders are eagerly anticipating the release of the U.S. Non-Farm Payrolls report and considering the potential impact of a pause in the Federal Reserve’s interest rate hike. These factors hold significant implications for the USD/JPY.

Debt Ceiling Bill Weakens Yen

The recent passage of a bill to suspend the debt ceiling by the Senate has removed support for the Japanese Yen, which is often favored as a safe-haven currency during times of uncertainty. Consequently, the Yen’s appeal as a safe-haven asset may diminish, potentially weakening the currency.

Fed Considers Interest Rate Pause

There is speculation that the Federal Reserve may decide to pause its interest rate hike at the upcoming meeting. Officials such as Philadelphia Fed President Patrick Harker and Fed Governor Philip Jefferson have expressed the need to gather more data before making further policy decisions. This cautious approach by the Federal Reserve is currently capping the Dollar/Yen.

Non-Farm Payrolls: Crucial Market Indicator

The U.S. Non-Farm Payrolls report holds significant importance for the financial markets, especially the currency market. This report provides essential data on employment trends and job growth in the United States. While there may be some softness in U.S. manufacturing data, job figures continue to be strong. Traders are eagerly awaiting this report as it could shape the Federal Reserve’s decision on future interest rate hikes.

Uncertainty Impacts Dollar/Yen Trading

The uncertainty surrounding the Federal Reserve’s interest rate decision and the outcome of the Non-Farm Payrolls report is reflected in the tight trading range of the Dollar/Yen currency pair. Money markets currently indicate reduced odds of a rate hike, declining from 70% to 29% over the week. If the Non-Farm Payrolls report reveals slower job growth and wage moderation, it may strengthen the case for the Federal Reserve to postpone an interest rate hike this month.

Treasury Yields Influence USD/JPY

The USD/JPY is known to closely track U.S. long-term Treasury yields. As yields have recently reached their lowest level since November 2022, the Dollar/Yen pair has been impacted accordingly. Lower yields can weaken the Dollar, making the Yen relatively stronger. Therefore, the performance of U.S. Treasury yields will continue to be a significant factor influencing the Dollar/Yen exchange rate.

Short-Term Outlook

Overall, the current market conditions surrounding the USD/JPY are being influenced by the potential pause in the Federal Reserve’s interest rate hike and the forthcoming Non-Farm Payrolls report. The removal of support for the Japanese Yen as a safe-haven currency through the debt ceiling bill passage adds to the dynamic.

Traders are closely watching the employment data, and a weaker-than-expected report may reinforce the case for the Federal Reserve to delay any rate hikes. These factors will shape the direction of the Dollar/Yen exchange rate, and market participants will closely monitor developments to make informed trading decisions.

Technical Analysis

Daily USD/JPY

The USD/JPY is currently trading in between 142.216 (R1) and 137.859 (PIVOT), but edging closer to support. The move indicates the main trend is up, but momentum is trending lower.

Since the main trend is up, buyers are likely to come in on a test of 137.859 (PIVOT). However, if it fails then look out to the downside. This could trigger a near-term acceleration into 134.783 (S1).

If the pivot holds as support then prices are likely to climb over the near-term into 142.216 (R1). Look for counter-trend sellers on the first test of this level.

Resistance & Support Levels

PIVOT – 137.859 R1 – 142.216
S1 – 134.783 R2 – 145.292
S2 – 130.425 R3 – 149.650

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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