USD/JPY Fundamental Daily Forecast – Kuroda Stresses Inflation Threat, While Traders Await US Jobs Report

The Dollar/Yen is edging higher on Friday as the Bank of Japan (BOJ) stuck to its super-low interest rate policy stance. Meanwhile, traders are also preparing for the release of the May U.S. Non-Farm Payrolls report that could influence future Fed policy decisions.

At 10:37 GMT, the USD/JPY is trading 130.148, up 0.248 or +0.19%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.12, up $0.18 or +0.25%.

BOJ Kuroda Sees Inflation as Risk to Japan’s Economy

Rising prices of daily necessities could hurt household sentiment, Bank of Japan Governor Haruhiko Kuroda said on Friday, suggesting that mounting inflationary pressure is emerging as a risk to the country’s fragile economy.

Japan’s core consumer inflation rose 2.1% year-on-year in April, exceeding the central bank’s 2% target for the first time in seven years, due largely to surging fuel and raw material costs.

Kuroda said it was undesirable for prices to rise too much when household income growth remains weak.

Kuroda has repeatedly said the BOJ won’t roll back its massive monetary stimulus as the recent rise in inflation was driven mostly by raw commodity costs and likely temporary.

“What the BOJ hope to achieve is a positive cycle in which prices rise gradually in tandem with strong economic growth and wage hikes,” Kuroda said.

“It’s important to create an economic environment where wages can rise more,” he added in stressing the need to keep monetary policy ultra-loose.

US Jobs Report Sets the Tone

Today’s US Non-Farm Payrolls report, due to be released at 12:30 GMT, is expected to show the economy added 328,000 jobs in May, down 100,000 from April, according to a Dow Jones survey.

Consensus estimates call for wages to rise by 0.4%, a faster pace than April’s 0.3% increase. The Unemployment Rate is expected to have dipped to 3.5%, down from 3.6%.

Traders, but more importantly, the Fed will be watching the average hourly wages number very closely. A higher than expected reading might signal that the Fed has to be more aggressive with policy to put pressure on inflation. This is likely to raise Treasury yields, which would be bullish for the USD/JPY.

A weaker number could support those who believe a recession in the U.S. is imminent. This could encourage central bank policymakers to ease policy, which could put pressure on the Dollar/Yen.