USD/JPY aims to resume upside journey from 132.00 as BOJ favors further policy easing

  • USD/JPY is expected to resume its north-side journey despite the risk-on market mood.
  • Further policy easing by the BOJ to support wage growth is impacting the Japanese Yen.
  • Higher interest rates might result in a slowdown of the employment generation process in the US economy.

The USD/JPY pair has corrected gradually to near the critical support of 132.00 in the early Asian session. The asset has witnessed weak selling pressure after a bumper rally to near 132.70. The major might resume its upside journey despite the risk-on market mood as the Bank of Japan (BOJ) has favored further policy easing to push wages higher.

S&P500 displayed a firmer recovery on Wednesday after a two-day sell-off as the Federal Reserve (Fed) is set to drop sheer pace in hiking interest rates.

The US Dollar Index (DXY) slipped firmly below 104.00 as an adaptation of the gradual pace in policy tightening by the Fed signaled a softening of the price index for goods and services in the United States. Also, support for deceleration in the pace of hiking rates by the majority of Fed policymakers has weighed on the return generated by US Treasury bonds. The 10-year US Treasury yields have dropped to near 3.69%.

For further action, investors will follow the release of the United States Automatic Data Processing (ADP) Employment Change (Dec), which is seen higher at 150K than the former release of 127K. On the contrary, the US Nonfarm Payrolls (NFP) is signaling an addition of 200K jobs vs. the prior release of 263K. A decline in the volume of manufacturing activities as reported by the US Institute of Supply Management (ISM) department and higher interest rates by the Fed are bolstering the expectations of a slowdown in the employment generation process.

On the Tokyo front, the Japanese yen witnessed a steep fall after BOJ Governor Haruhiko Kuroda advocated for further policy easing to push the wage price index in order to achieve raised inflation forecasts for CY2023 and 2024.