USD/JPY skids below 136.00 ahead of US NFP

• USD/JPY has slipped firmly below 136.00 as investors await the release of the US NFP.
• The downbeat US ISM Services New Orders Index data has open room for downside potential for the DXY.
• Stagnancy in Japan’s wage price will restrict the inflation rate to remain at desired levels.

The USD/JPY pair has given a downside break after witnessing topsy-turvy moves in a 135.94-136.06 range in the early Tokyo session. For the past two trading sessions, the asset is trading in a range of 135.55-136.21, however, the US dollar index (DXY) has remained volatile these trading sessions amid the release of the Federal Open Market Committee (FOMC) minutes and US ISM Services data.

The undertone of the FOMC minutes for the June monetary policy was extremely hawkish as only one FOMC member was not in favor of announcing a 75 basis point (bps) interest rate hike. Also, the guidance provided by the Federal Reserve (Fed) was extremely hawkish as the central bank is ‘unintentionally committed’ to bringing price stability to the economy. In case, the price pressures persist, the Fed won’t hesitate in announcing one more 75 bps rate hike.

The release of the downbeat US ISM Services New Orders Index data has triggered the downside risk for the DXY. The US ISM New Orders Index landed at 55.6, significantly lower than the estimates and the prior print of 62.1 and 57.6 respectively. The corresponding data reflects the forward demand by the households and eventually, the lower New Orders Index indicates lower demand ahead.

Going forward, the US Nonfarm Payrolls (NFP) will keep investors busy. As per the market consensus, the US economy has added 270k jobs in the labor market, significantly lower than the former release of 390k. Alongside, the Unemployment Rate may remain stable at 3.6%.

On the Tokyo front, the Bank of Japan (BOJ) is worried over the stagnant wage-price concept. The BOJ believes that wage prices are needed to be hiked in order to keep the inflation rate near the desired levels. Otherwise, the households will face the heat of higher price pressures and aggregate demand will tumble quantity-wise.