USD/JPY Rises Near Two-Week High Ahead of NFP Report

3 kwi 2023

The USD/JPY pair has surged to an intraday high near 133.50, close to the highest level in two weeks. The recent rise can be attributed to higher US Treasury bond yields and a stronger US dollar as the market anticipates the release of the crucial Nonfarm Payrolls (NFP) report on Friday. The recent challenges to market sentiment, mainly from the OPEC+ group's inflation worries, have also boosted the pair's rally. However, mixed domestic data and pre-NFP jitters have challenged the recent buyer sentiment.

The Bank of Japan's closely watched Tankan Large Manufacturing Index for Q1 2023 declined to 1.0 from the previous reading of 7.0 and an expected 3.0. Meanwhile, Japan's Jibun Bank Manufacturing PMI for March improved to 49.2 from 48.6, indicating a contraction in private manufacturing activities.

On the other hand, the US Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, fell to 4.6% YoY in February, below the market expectation of 4.7%. Core PCE inflation rose 0.3% on a monthly basis, lower than the market expectation of 0.4%.

The receding hawkish calls surrounding the Bank of Japan (BoJ) have also supported USD/JPY buyers. However, the market seems to have given little attention to the recent easing fears of a banking crisis and the Fed's hawkish moves.

Currently, Japan's Nikkei 225 is up 1.0% intraday to 28,041, while the S&P 500 Futures snapped a three-day uptrend. The US 10-year and two-year Treasury bond yields are trading with mild gains near 3.52% and 4.11%, respectively, after paring the latest losses.

Looking forward, USD/JPY is expected to continue its rebound amid firmer yields and a light calendar. However, any disappointment in the incoming PMIs and NFP may weigh on the US dollar prices, considering the receding hawkish bets on the Fed.