USD/JPY advances after last week’s US Nonfarm Payrolls release

• The US job market is starting to cool, but average hourly earnings suggest upside inflation risks.
• The BOJ maintains a dovish policy on the yield curve, with most advocating maintaining current monetary policy.
• The US CPI will be released on August 10, with an estimate of 3% yoy, while the core CPI is expected to fall to 4.7% yoy.

USD/JPY rallied strongly during the North American session on Monday, as the US dollar strengthened amid a boost in risk appetite following mixed US jobs data from last week. Aggressively, the comments of a Fed official over the weekend favored the dollar’s advance. The USD/JPY pair is trading at 142.47, up 0.55% on the day.

Dovish comments from Fed official Michelle Bowman lift dollar, while Bank of Japan maintains a dovish stance

Wall Street is trading with solid gains in an upbeat mood as US Treasury yields advance. The reaction of market participants to the publication of the Non-Farm Payrolls last Friday, which disappointed expectations of 200,000, standing at 187,000, caused a massive sale of the Dollar, which has trimmed part of its losses, registering modest gains of 0.13%, as shown by the Dollar Index (DXY).

Although the US labor market showed signs of easing, inflationary pressures remain with average hourly earnings holding at 4.4% yoy, beating the consensus of 4.2%. This could trigger a further spike in inflation in the United States (US), which is expected to present its July report on August 10.

Estimates for the US Consumer Price Index (CPI) point to inflation falling to 3% from 3.3% in June, while core CPI, excluding volatile items, would slow to 4.7 % YoY from 4.8% in June.

The USD/JPY rally was helped by hawkish comments from Michelle Bowman, who said the Fed would probably have to raise rates further to reduce inflation. On the dovish end of the spectrum, New York Fed President John Williams has signaled that rate cuts could begin as early as 2024, depending on economic data and whether inflation remains on the downside. .

In addition, US Treasury yields, particularly the 10-year yield, rose five basis points (bps) to 4,090%, a tailwind for USD/JPY. Meanwhile, the DXY, a measure of the value of the US dollar against six currencies, gains 0.12% to trade at 102.130.

The Bank of Japan (BOJ) summary opinion confirms a moderate tightening of the yield curve, suggesting that the Japanese yen (JPY) is expected to rise in the near term. Most of the officials insisted on the need to maintain the current monetary policy. At the same time, one member suggested that inflation would remain at 2% “so sustainable and stable seems to have come clearly into view.”

USD/JPY Technical Levels