USD/JPY Nears 142 as Bond Yields Drop

The USD/JPY currency pair is closing in on the 142.00 level today, down 0.9%. 10-year Treasury yields are down nearly 4 basis points to under 3.70%, adding weight to USD/JPY. The pair is dragged down by 0.9% to near 142.00, with the August 5 low of 141.68 in focus.

Equities are also impacted by the breakdown in yields, with S&P 500 futures now down 0.8%. A risk-off wave is taking flight. This comes as traders position for sentiment shifts ahead of the US jobs report later today.

A poor set of labor market indicators could prompt calls for the Federal Reserve to cut by 50 basis points this month. This upcoming report is one to watch. For now, positioning flows will still need some vindication.

Traders are advised to remain cautious when navigating today’s trading waters. Currency strategists see a strong chance of the yen testing its August high versus the dollar later Friday if payrolls data boost bets for a jumbo rate cut by the Fed this month.

Usd/yen nears critical support level

Gareth Berry, a strategist at Macquarie Group Ltd., said the yen “is where the action will be” if there is any surprise in the figures. According to Berry, the dollar will be “in deep trouble” versus Japan’s currency if the unemployment rate ticks up to 4.4%. Strategists at JPMorgan Chase & Co.

and Mizuho Securities Co. are also looking to the data as a potential catalyst for the yen to extend its rally. The currency appreciated about 0.8% to 142.31 versus the greenback as of 3:31 p.m. in Tokyo, putting it on course for a fourth straight day of gains.

That’s put the yen within striking distance of the 141.70 level it set during the bout of turmoil that gripped global markets in August. JPMorgan has added positions to its existing yen longs via put options on the prospect that the jobs data will fall short of economists’ estimates, triggering a 50 basis-point rate cut. Options traders see an 85% chance of the yen appreciating beyond the August high in the coming week and a 48% probability that it will break 140.

Shoki Omori, chief desk strategist at Mizuho in Tokyo, said, “It could easily go down below 142. If the momentum is there, testing 141 is realistic.” Mahjabeen Zaman at Australia & New Zealand Banking Group Ltd. shared the same view, stating that with weaker-than-expected data, the dollar “will likely test lows seen in early August.”