USD/JPY scales above 133.60 despite a rebound in risk-on mood, US NFP in focus

• USD/JPY has stretched its recovery above 133.60 despite an improvement in investors’ risk appetite.
• S&P500 futures have displayed a firmer recovery while the USD Index is displaying a subdued performance.
• An ultra-loose monetary approach by the BoJ has triggered volatility in Japanese Yen.

The USD/JPY pair has shifted its auction profile above the crucial resistance of 133.60 in the Asian session. The asset has sensed buying interest despite a recovery attempt by the risk-on impulse. It seems that a spree of the emergency bond-buying program by the Bank of Japan (BoJ) is impacting the Japanese yen.

S&P500 futures have recovered significantly in the Tokyo session while indices were heavily sold on Thursday, portraying an improvement in the risk appetite of the market participants. Also, the US Dollar Index (DXY) is struggling to get stronger after a marginal drop to near 104.75. A recovery in the risk-on impulse has also improved the demand for US government bonds. This has led to a decline in 10-year US Treasury yields to 3.71%.

Regular bond-buying by the BoJ to achieve raised inflation targets for CY2023 and 2024 is resulting in the weakness of the Japanese Yen. BoJ Governor Haruhiko Kuroda is dedicated to achieving pre-pandemic growth levels by maintaining an ultra-loose monetary policy, which will scale up the volume of economic activities.

The Automatic Data Processing (ADP) agency of the United States reported a healthy improvement in the number of employment additions for December month to 235K vs. the expectations of 150K and the former release of 127K. It is highly transparent that higher requirements for talent will be offset by offering higher wages, which would spurt wage growth and therefore leave individuals with more funds for disposal. The expression could bring a recovery in the price index through bumper retail demand.

Going forward, the release of the United States Nonfarm Payrolls (NFP) data will provide more clarity on the employment status. The Unemployment Rate is seen unchanged at 3.7%. Apart from that, the release of the Average Hourly Earnings data will be of utmost importance.