Yen eyes US Payrolls, Japan household spending jumps

The Japanese yen is in negative territory on Friday.  This follows a two-day rally which saw the  yen jump  1.9% and hit a three-month high.  In the European session, USD/JPY is trading at 151.94, up 0.39% on the day.  On the data front, Japan’s household spending was much stronger than expected and the US releases nonfarm payrolls.

Japan’s household spending hits 2.5-year high

Japan’s household spending has been struggling as inflation remains relatively high.  This made the December report a pleasant surprise, as household spending was much higher than expected.  Annually, household spending climbed 2.7%, crushing the market estimate of 0.2% and rebounding from -0.4% in November.  The monthly gain of 2.3% followed the November reading of 0.4% and beat the market estimate of -0.5%.

Household spending was the strongest since Aug. 2022, driven by strong wage gains. However, it is questionable whether the impressive gain is a temporary blip, given that the December wage growth was largely driven by bonuses.  Still, real wages (adjusted for inflation) rose for a second straight month in December, which supports the case for the Bank of Japan to continue raising interest rates.  BoJ policy makers have been unusually candid about plans to raise rates, although the timing is uncertain, with May or August strong possibilities for the next rate hike.

US Nonfarm Payrolls expected to drop

The US wraps up the week with nonfarm payrolls, one of the most important economic events.  The market estimate stands at 170 thousand for January, after a surprisingly strong gain of 256 thousand in December.  If the January forecast is accurate, it would mark a sharp drop that would make headlines, but is close to the past three-month average.

The Federal Reserve won’t be worried if job creation slows as long as the labor market is cooling at a slow pace.  The Fed is expected to cut rates only once or twice this year, but that could change if inflation or the labor market provide any surprises.

USD/JPY technical

• USD/JPY is testing resistance at 151.86.  Next, there is resistance at 152.48.

• 150.83 and 150.21 are the next support levels.