USD/JPY climbs on strong USD after last week’s US Nonfarm Payrolls data

• The US jobs market begins to cool down, but Average Hourly Earnings flash inflation risks tilted upside.
• BoJ retains a dovish yield curve policy, with the majority advocating for the preservation of the existing monetary policy.
• US CPI data eyes on August 10, estimates lie at 3% YoY, while the core is expected to drop to 4.7% YoY.

USD/JPY advanced sharply during Monday’s North American session as the greenback strengthened amid a risk-on impulse following last week’s mixed US jobs data. Hawkish comments over the weekend by a Fed official sponsored the greenback advance. The USD/JPY is trading at 142.47, above its opening price by 0.55%.

Hawkish remarks from Fed official Michelle Bowman fuel USD strength, while the Bank of Japan maintains a dovish stance

Wall Street is trading with solid gains, portraying an upbeat mood, while US Treasury bond yields advance. Market participants’ reaction to last Friday’s US Nonfarm Payrolls reports missing estimates of 200K, coming at 187K, triggered a sell-off of the greenback, which has trimmed some of its losses, registering modest gains of 0.13%, as shown by the US Dollar Index (DXY).

Although the US jobs market showed signs of easing, inflationary pressures are still present, with Average Hourly Earnings remaining at 4.4% YoY, exceeding the consensus of 4.2%. That could spark another rise in inflation in the United States (US), which is expected to deliver its July report on August 10.

Estimates for the Consumer Price Index (CPI) in the United States (US) depict inflation falling to 3% from 3.3% in June, while Core CPI, which strips out volatile items, is estimated to decelerate to 4.7% YoY, from 4.8% in June.

The USD/JPY advancement was sponsored by hawkish comments by Michelle Bowman, who said the Fed would likely need to lift rates further to bring down inflation. On the dovish side of the spectrum, the New York Fed President John Williams noted that rate cuts could begin in early 2024,  depending on economic data and if the inflation trend continued to edge lower.

Also, US Treasury bond yields, particularly the 10-year benchmark note, rise five basis points (bps) to 4.090%, a tailwind for the USD/JPY. Meanwhile, the DXY, a measure of the US Dollar’s value against six currencies, gains 0.12% and exchanges hands at 102.130.

The Bank of Japan (BoJ) Summary of Opinions confirms a dovish yield curve tweak, suggesting that further Japanese Yen (JPY) is expected in the near term. Most officials stressed the need to maintain the current monetary policy in place. At the same time, one member suggested that inflation would remain at 2% “in a sustainable and stable manner seems to have clearly come in sight.”

USD/JPY Technical Levels