Japanese Yen hangs near weekly low after weak spending data as USD bulls await US NFP

USD/JPY preserves its weekly recovery gains and draws support from a combination of factors.
Japan’s weak spending data clouds the BoJ rate path and undermines the JPY amid fiscal concerns.
Geopolitical risks and Fed hike bets support the USD and spot prices ahead of the US NFP report.

Haresh Menghani FXStreet

The USD/JPY pair is seen consolidating this week's solid recovery gains from the 155.25-155.20 region, the lowest since May, touched in the aftermath of a joint US-Japan intervention, and holds steady near the weekly top. Spot prices currently trade around mid-158.00s, nearly unchanged for the day, as investors opt to wait for the crucial US monthly employment details before placing fresh directional bets.

The popularly known Nonfarm Payrolls (NFP) report will influence market expectations about the US Federal Reserve's (Fed) future policy path. This, in turn, would drive the US Dollar (USD) demand and provide fresh impetus to the USD/JPY pair. In the meantime, persistent geopolitical risks, inflation risks stemming from rebounding oil prices, and Fed rate hike bets act as a tailwind for the safe-haven buck.

In the latest developments surrounding the Middle East crisis, Saudi Arabia said that an intelligence report indicates Iraqi militias, coordinating with the Houthis in Yemen, are planning an imminent attack on the kingdom. Furthermore, Iranian state news reported that a framework agreement over the management of the Strait of Hormuz would prohibit passage of US, Israeli, and hostile vessels until compensation was paid.

This could jeopardize efforts for a diplomatic resolution to end a five-month-old US-Iran war, prompting traders to price in the geopolitical risk premium and leading to the overnight rise in crude oil prices. Investors remain worried that elevated energy prices would rekindle inflationary pressure and force major central banks, including the Fed, to adopt a more hawkish stance and lift borrowing costs.

The hawkish outlook, in turn, remains supportive of rising US Treasury bond yields, which further underpins the USD. The Japanese Yen (JPY), on the other hand, is weighed down by concerns about Japan's worsening fiscal condition and worries that the economy will remain under strain due to the Middle East crisis. Moreover, an unexpected fall in Japan's Household Spending weighs on the JPY.

In fact, data from the internal affairs ministry showed that consumer spending fell 3.3% year-on-year in June, defying market expectations for a rise and marking the seventh straight month of contraction. This underscores persistent weakness in domestic demand and weakens the case for a Bank of Japan (BoJ) rate hike in September, which favors JPY bears and should support the USD/JPY pair.

Economic Indicator

Overall Household Spending (YoY)

The Overall Household Spending released by the Ministry of Internal Affairs and Communications is an indicator that measures the total expenditure by households. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth. A high reading is positive (or Bullish) for the JPY, while a low reading is negative (or bearish).

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.24%	0.32%	0.86%	0.04%	0.14%	0.56%	0.75%
EUR	-0.24%		0.09%	0.62%	-0.20%	0.00%	0.32%	0.52%
GBP	-0.32%	-0.09%		0.19%	-0.29%	-0.09%	0.23%	0.42%
JPY	-0.86%	-0.62%	-0.19%		-0.74%	-0.56%	-0.18%	-0.01%
CAD	-0.04%	0.20%	0.29%	0.74%		0.19%	0.57%	0.72%
AUD	-0.14%	-0.00%	0.09%	0.56%	-0.19%		0.31%	0.50%
NZD	-0.56%	-0.32%	-0.23%	0.18%	-0.57%	-0.31%		0.19%
CHF	-0.75%	-0.52%	-0.42%	0.00%	-0.72%	-0.50%	-0.19%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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