What's in store for USD/JPY?


The USD/JPY pair advanced up to 114.74 this Wednesday ahead of the release of the US ADP report. The private employment survey fueled the pair's advance, also underpinned by a sharp recovery in US Treasury yields. The American dollar stands victorious against all of its major rivals, underpinned by the release of a much better-than-expected ADP report (the private sector in the country added 298,000 new jobs during February).

There are speculation that the upcoming US Nonfarm Payroll report will be strong enough to back a Fed's hike as soon as next week ( this is very positive for USD, and "bullish" signal for USD/JPY currency pair). With the big event coming up on Friday in the nonfarm payrolls and all this hype in regards to the Fed hiking in March:

  • The US created 227k jobs in January vs 175k that were expected (but the official U3 unemployment rate went up from 4.7% to 4.8% in January)
  • A March rate hike is considered more or less a given, unless Friday's employment report disappoints significantly. Following a further increase in short-term yields, markets are now discounting a probability of some 85%. This also seems to be the main driver for the dollar, with the USD index up 0.2%, despite news that the US trade deficit reached the largest level in real terms since 2015
  • Fed's Yellen spoke about the US economic outlook at the Executives Club of Chicago last week (she added that two more rate hikes this year are likely, this is positive news for the USD)
  • Japanese economy expands less than expected. Japanese policymakers remain frustrated by the weakness in wages growth. BoJ governor Kuroda is starting to be asked whether inflation will hit the 2% target before his 5 year term ends on 8 April 2018 (situation is not optimistic and the inflation target of 2% does not look attainable)
  • According to some analysts Japan is not completely out of deflation yet


Further gains are not clear yet for this currency pair but if the USD/JPY jumps above 115 level it would be the confirmation of "bullish" trend and this pair will have open way to 116 and 118 levels ( 118.000 represents very strong resistance level, 114.000 represents short term support level). Solid economic data and rising inflation and wages argue for the Fed to continue gradually normalizing monetary policy this year. Friday's employment report will be the main driver for this currency pair and for now USD/JPY looks more "bullish" (fundamentally and technically).

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