USD/JPY regains 133.00 as firmer yields battle recession woes, China-linked fears ahead of US NFP

• USD/JPY remains mildly bid while consolidating the previous day’s losses amid pre-NFP anxiety.
• Japan’s household spending grew, real wages eased in June.
• Yields snap two-day downtrend but the 10-year, 2-year inversion portray economic fears.
• China’s missiles landed on Japan’s exclusive economic zone and propelled geopolitical fears.

USD/JPY seesaws around the intraday high of 133.35, near 133.10 by the press time, as firmer Treasury yields join mixed Japan data to recall buyers after the previous day’s fall. It’s worth noting that the cautious mood ahead of the US monthly employment report also seemed to have favored the yen pair’s rebound.

That said, Japan’s Households Spending grew 1.5% MoM and 3.5% YoY in June versus 0.2% and 1.5% marked forecasts. Further, Labor Cash Earnings rose to 2.2% YoY during the stated month compared to 2.1% expected. It should be noted, however, that the read wages eased to -0.4% YoY in June. Given the mixed data, the Bank of Japan (BOJ) is more likely to continue with its ultra-easy monetary policy.

Elsewhere, the US Initial Jobless Claims rose to 260K for the week ended on July 30 versus 254K prior and 259K expected. Further, job cuts eased and German Factory Orders improved while the US Goods and Services Trade Balance improved to $-79.6B versus $-80.1B market consensus and $-84.9B revised prior.

It should be noted that the US 10-year Treasury yields stabilize around 2.069% after declining in the last two days. Even so, the US Treasury yields continued to portray the risk of recession as the difference between the 10-year and 2-year bond coupons remain the widest since 2000.

In addition to the yields, news that China’s missiles landed on Japan’s exclusive economic zones raised market fears. The dragon nation conducted heavy military drills near the Taiwan border after US House Speaker Nancy Pelosi visited Taipei against Beijing’s warning.

Against this backdrop, Wall Street closed mixed and the S&P 500 Futures print mild gains while taking rounds to the two-month high flashed the previous day, up 0.23% intraday around 4,162 by the press time.

Looking forward, USD/JPY traders should pay attention to the risk catalysts and yields ahead of the US Nonfarm Payrolls (NFP) for July, expected 250K versus 372K prior, for clear directions.

Also read: Nonfarm Payrolls Preview: High expectations set deal the dollar a blow, create buying opportunity

Technical analysis

USD/JPY seesaws between the 50-DMA and the 100-DMA, respectively around 134.80 and 130.65 amid sluggish markets.