USD/JPY demonstrates volatility squeeze near 149.00 after a flash crash

The USD/JPY pair trades back and forth in a narrow range around 149.00 in the early New York session. The volatility of the pair contracts after Tuesday’s ‘flash crash’ near the psychological resistance of 150.00, which was misguided as a Bank of Japan’s (BoJ) intervention in the FX domain to defend further downside in the Japanese Yen.

The upside in the Japanese Yen is broadly restricted to the resilient US Dollar. However, the possibility of BoJ’s or Japan's authority’s intervention in the FX market cannot be ruled as the central bank is maintaining an expansionary monetary policy. The BoJ has vowed to keep inflation confidently above 2%, which could be achieved by higher wage growth.

Early Thursday, Japanese Prime Minister Fumio Kishida vowed to make a surge of wage rises sustainable as inflation above 2% is majorly driven by external forces.

The S&P500 opens on a flat note as investors shift focus to the United States Nonfarm Payrolls (NFP) data, which will be published on Friday. Analysts at Commerzbank forecasted job growth of 160K. After the surprisingly sharp rise from 3.5% to 3.8% in August, the unemployment rate is likely to have fallen again slightly to 3.7%, as the trend in labor force growth is only around 100K. We do not expect the unemployment rate to rise significantly until next year when the economy is likely to slip into recession and employment is likely to shrink.

The US Dollar Index (DXY) trades in a narrow range around 106.50-106.86 after the release of the US weekly jobless claims data for the week ending September 29, which remains almost unchanged at 207K.