USD/JPY extends its upside above the 146.70 mark, eyes on US Factory Orders

• USD/JPY trades in positive territory for the third consecutive day on Tuesday. 
• Japanese Household Spending suffered its largest decline in nearly two and a half years.
• A mixed US employment data and upbeat manufacturing PMI decreases Fed tightening expectations.
• Market players await the US Factory Orders ahead of the US ISM Services PMI, Japanese Gross Domestic Product (GDP).

The USD/JPY pair extends its upside above the mid-146.00s during the early European session on Tuesday. The major pair currently trades near 146.72, gaining 0.16% on the day. 

Japanese household expenditure suffered its largest decline in nearly two and a half years. According to the most recent data released on Tuesday, Japanese Household Spending fell 5.0% year on year in July, below the market expectation of a 2.5% drop. This figure indicated the sixth straight month of decline. Earlier, the Japanese Monetary Base data for August revealed a rise of 1.2% YoY compared to the previous reading of a 1.3% drop.

It is worth mentioning that the Bank of Japan (BOJ) maintains its loose monetary policy while shifting away from yield curve control. BoJ Board member Toyoaki Nakamura said last week that policymakers need more time to move to monetary tightening. However, the monetary policy divergence between the US and Japan may limit the USD/JPY pair's downside for the time being.

Furthermore, Japanese Finance Minister Shunichi Suzuki stated last week that although sudden fluctuations in currencies are undesirable, there is no visible indication of intervention in the market to shore up the weak yen. However, the policymaker will closely watch the currency move. 

Following last week's mixed economic data results, market participants place bets on the Federal Reserve (Fed) taking a less aggressive posture. According to the CME FedWatch Tool, the possibility of keeping interest rates at the September meeting remains at 93%, while the odds of hiking rates at the November meeting are about 38%.

About US data last week, August's Nonfarm Payrolls (NFP) came in at 187K, better than market expectations of 170K and the previous reading of 157K. Nevertheless, the Unemployment Rate fell substantially to 3.8%, compared to the market consensus and the previous rate of 3.5%. The US Manufacturing PMI came in at 47.6 versus 46.4 previously and exceeded expectations of 47.0. The upside of the Greenback seems limited as Wall Street is closed today in observance of Labor Day.

Market players will keep an eye on the US Factory Orders due later in the day. The attention will shift to the US ISM Services PMI on Wednesday. On Friday, the Japanese Gross Domestic Product (GDP) for Q2 will be released. The quarterly growth number is expected to grow by 1.3%. Traders will find the trading opportunity around the USD/JPY pair.