USD/JPY retreats from 24-year high near 140.00 amid sluggish yields ahead of US NFP

• USD/JPY pares recent gains at the highest levels since 1998 as traders await US jobs report for August.
• Monetary policy divergence between Fed and BOJ underpins the bullish bias.
• Yields seesaw around multi-year high amid hawkish Fed bets.
• Japan policymakers have signaled market intervention of late but couldn’t lure yen buyers.

USD/JPY renews intraday low around 140.00 as it retreats from the 24-year high, marked the previous day, amid anxiety over the upcoming US employment data. That said, the quote drops to 139.87 as Tokyo opens for Friday’s trading.

The yen pair’s latest pullback could be linked to the sluggish US Treasury yields around the multi-month high. However, hawkish Fed bets keep the bulls hopeful ahead of the key US Nonfarm Payrolls (NFP).

That said, the US 10-year Treasury yields print a one-pip fall from the highest levels since late June, to 3.25%, while the two-year US bond coupons follow the trend while retreating from the 15-year high. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

On Thursday, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002.

US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Elsewhere, a covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan.

It should be noted that statements from Japanese Chief Cabinet Secretary Hirokazu Matsuno, as well as Finance Ministry, signaled that the authorities are bracing for market intervention.

Amid these plays, S&P 500 Futures remain inactive at 3,965 after a mixed closing of the Wall Street benchmarks.

Moving on, USD/JPY traders will pay close attention to the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse. It’s worth mentioning, though, that the divergence between the US Federal Reserve (Fed) and the Bank of Japan (BOJ) could keep the pair buyers hopeful.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Technical analysis

Only if the USD/JPY prices decline below July’s peak near 139.40, the intraday sellers could take the risk of entry. Otherwise, a run-up towards the 61.8% Fibonacci Extension (FE) of the pair’s late March to early August moves, near 141.60, can’t be ruled out.