USD/JPY holds above 130.00 as Fed-led rally in risky bets fades, US NFP eyed

• USD/JPY is advancing towards 130.56 as higher US NFP forecasts bolstered 75 bps rate hike chances.
• More additions to the US job market will push the labor cost index higher.
• The Japanese yen will resume its downside move after a short-lived pullback.

The USD/JPY pair is looking to recapture weekly highs at 130.56 after a minor pullback as the profit-booking kicks in. The asset witnessed a strong upside move on Thursday after the risk-perceived currencies lost their aura as a rebound in the risk-on impulse after the announcement of the interest rate decision by the Federal Reserve (Fed) faded.

Fed’s monetary policy-based rally vanished after the odds of a 75 basis point (bps) rate hike in the June meeting bolstered. Although Fed Chair Jerome Powell stated while addressing the media that a 75 bps rate is not into consideration, investors still bet on a bumper rate hike figure amid soaring inflationary pressures. The US economy is enjoying a tight labor market. The Unemployment Rate is well below the targeted figure and job opportunities are scaling higher. Soaring additions in the labor market are indicating a higher labor cost index, which may ramp up price pressures and eventually higher inflation further.

Ongoing higher inflationary pressures have raised the importance of the US Nonfarm Payrolls (NFP), which will release on Friday. The additional jobs are seen at 391k against the prior print of 431k.

Meanwhile, the Japanese yen has started declining after a pause as mounting pressure on households’ real income is impacting the economy. Higher fuel bills and other commodity prices have dampened the real income of the household and have also widened their fiscal deficit. Apart from that, an ultra-loose monetary policy by the Bank of Japan (BOJ) will keep yen on the tenterhooks.