USD/JPY under pressure after Negative Unemployment Data

  • Fears of a recession boost the safe-haven JPY while weighing on the pair USD/JPD.
  • US weekly jobless claims came higher than expected.
  • Japanese economy just barely escaped recession in Q4 2022.

USD/JPY Fundamental Analysis

USD/JPY is trading at 136.30, down by 0.755 in 24 hours. The pair traded lower while traders await key BoJ Monetary Policy and FOMC meetings.

Speculation about Fed rate hikes

On the second day of his semi-annual speech, Jerome Powell, the chairman of the Federal Reserve, reaffirmed the need for more interest rate increases to control inflation.

Similarly, Powell noted that they still haven’t reached any conclusions on the March policy meeting and emphasized that they are data-dependent. He reaffirmed his prior remarks that the US Federal Reserve would likely have to raise interest rates more than anticipated and probably for a prolonged period. It is because recent economic data has been stronger than expected, indicating ongoing inflationary pressures.

Meanwhile, reports from the United States showed that private-sector employment climbed by 242,000 in February. The figures revealed that US private payroll growth in February exceeded expectations, which did nothing to ease worries about increasing rates. According to another survey, the job market remained tight in January, with the workforce shrinking to 10.82 million. It fueled speculations that the Fed would stick to its course of gradually raising interest rates.

As a result, the markets are now pricing in a higher likelihood of a massive 50 bps lift-off at the upcoming FOMC meeting on March 21–22, which continues to support the high 10-year US Treasury bond yield. However, the DXY spent the day jumping up and down in a limited range.

Furthermore, in the week ending March 4, seasonally adjusted initial unemployment claims advanced to 211,000, up 21,000 from the unrevised total of 190,000. The unrevised 4-week moving average increased by 4,000 from the previous week’s average of 193,000 to 197,000.

Unemployment insurance applications are higher than expected, which further lowers the dollar. DXY is trading lower at 105.49, adding pressure on the forex pair USD/JPY today.

Furthermore, traders appear to have shifted to the sidelines ahead of the much-anticipated February employment data (NFP report) from the United States on Friday.

Safe Haven Bets d strength to JPY and weighed on USD/JPY pair

The economy of Japan managed to escape falling into recession in the fourth quarter of 2022, according to recently released data. GDP hardly increased because of weak consumption after declining in Q3. It shows the difficulties authorities face in stabilizing an unstable recovery and raising safe-haven bets in market sentiment. Therefore, the safe-haven currency Japanese Yen, gained strength against the US dollar and added pressure on USD/JPY currency pair.

In the fourth quarter, the Japanese economy slowed as GDP expanded by an annualized 0.1%. It was far less than the economists’ average forecast of 0.8% and below the prior prediction of a 0.6% increase.

However, the GDP figures had little impact on the JPY, so the currency pair USD/JPY kept on following the trend.

Markets are now anticipating the Monetary Policy Statement and the BOJ Press Conference, scheduled for release on Friday.

Upcoming BoJ Monetary Policy Statement

On Friday, the Bank of Japan will publish its monetary policy decisions at its meeting, overseen by Governor Haruhiko Kuroda. After serving for ten years, Governor Kuroda will chair his final policy meeting at the BoJ. Kazuo Ueda, the BOJ governor appointed by the government, will now officially replace Haruhiko Kuroda. This event is likely to have a great impact on USD/JPY prices in the coming session.

Market participants anticipate that the BoJ would maintain its dovish policy to strengthen the struggling domestic economy. The final GDP report showed a continued economic decline, confirming the predictions.

Moreover, Ueda recently emphasized the necessity of maintaining the ultra-loose policy settings and stated that the central bank isn’t looking to end a period of huge easing.

Experience is a hard teacher because she gives the test first, the lesson afterwards.

Vernon Sanders Law