USD/JPY Fundamental Daily Forecast – Be Prepared for Surprise Jump in Wages

The Dollar/Yen continues to strengthen in reaction to a widening of the yield spread between U.S. Government Bonds and Japanese Government Bonds.

U.S. government debt yields were higher Friday morning as the bond sell-off continued.

At 1129 GMT, the USD/JPY is trading 109.903, up 0.505 or +0.46%.

The yield on the benchmark 10-year Treasury Notes was higher at around 2.7919 percent, while the yield on the 30-year Treasury Bond was also higher at 3.0350 percent. The latter topped the 3 percent benchmark Thursday for the first time since May. The price action suggests investors seem increasingly confident that the Federal Reserve will increase rates at a faster pace following the release of its somewhat hawkish monetary policy statement on Wednesday.

Forecast

The direction of the Dollar/Yen today will be determined by the movement in the U.S. Dollar. The dollar will be impacted by the U.S. Non-Farm Payrolls report.

Traders are looking for a rise of 180,000 jobs in January after increasing 148,000 in December. The unemployment rate is forecast to be unchanged at a 17-year low of 4.1 percent. Average Hourly Earnings are expected to rise 0.2%.

This week’s ADP Private Sector jobs report suggests the headline estimate is too low. Stronger-than-expected jobs data, lower employment and higher wages would signal strength in the economy, and could in turn support the Dollar/Yen.

The important number that Japanese Yen traders will be watching is average hourly wages. They are expected to rise 0.2% to 0.3%. If that number is higher, it could surprise the markets and give the U.S. Dollar a much needed boost.

The Forex markets have been volatile this week due to rising interest rates and concerns about inflation, so any signs of wage inflation could add to the momentum.