Explosive Nonfarm Payrolls Action Imminent!

The nonfarm payrolls report could act as a catalyst for the yen's continued rise, potentially driving it past the levels reached during the global market turmoil on August 5.

Key points:

1. When global stock indices tank, the Japanese yen is usually a big beneficiary of the risk-off trade.
2. This morning’s weaker-than-expected JOLTS Job Openings survey is weighing on the US dollar.
3. If 144.00 gives way, a continuation toward the 13-month low around 140.75 could be next for USD/JPY.

U.S. nonfarm payroll data

Forex strategists believe that if tonight's U.S. nonfarm payroll data boosts bets on a significant Federal Reserve rate cut this month, the yen is likely to test August highs against the dollar later on Friday.

Gareth Berry, a strategist at Macquarie Group, stated that if there are any surprises in the data, the yen "will be the one to watch." Berry, based in Singapore, noted that if the unemployment rate rises to 4.4%, the USD/JPY pair could "struggle."

Strategists from JPMorgan and Mizuho Securities also view the data as a potential catalyst for the yen's continued appreciation. The data could be decisive in determining whether the Federal Reserve will cut rates by 25 or 50 basis points. The yen has risen against the dollar for the fourth consecutive day, and a further 1% increase could see it surpass the 141.70 level reached during the global market turmoil on August 5.

The Japanese yen could surge

JPMorgan has increased its existing yen long positions through put options, anticipating that U.S. employment data could fall short of economists' expectations, potentially triggering a 50 basis point rate cut. In a research report dated September 5, strategists James Nelligan and Patrick Locke stated that the expected outcome "gives us confidence to support funding currencies, including the yen."

According to Bloomberg data, option traders estimate that there is nearly a two-thirds chance the yen will surpass its August 5 high within the next week, with a 35% chance of breaking below 140.

Shoki Omori, chief strategist at Mizuho in Tokyo, commented, "The USD/JPY could easily fall below 142. If there's momentum, testing 141 is realistic."
Mahjabeen Zaman from Australia and New Zealand Banking Group also shares this view, noting that if the data is weaker than expected, the dollar "might test the early August lows."

The Japanese currency traded at the day’s high of 143.76 per dollar late in the New York session, the strongest mark in a week. The move brings the yen’s gains over the last two days to more than 2% and came after a key segment of the US yield curve — the spread between 10- and two-year notes - briefly disinvested for only the second time since 2022 as Fed easing bets gained steam.

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