The Japanese yen clung to its gains against the U.S. dollar on Friday and was on track for its strongest week in more than a month, as traders ramped up bets on a Bank of Japan interest rate hike and broader currency markets awaited U.S. payrolls data.
Noriko Hayashi | Bloomberg | Getty Images
The dollar jumped on Friday after data showed that U.S. employers added 162,000 jobs in August, well above the 56,000 additions expected by economists, boosting bets on a September Federal Reserve interest rate hike. The currency then pared much of the gain as traders awaited next week’s inflation data.
August’s jobs gains follow an unexpected 23,000 job decline in July. The unemployment rate held steady at 4.1%.
“I don’t think this number changes anything really,” Noel Dixon, senior macro strategist at State Street, said. “It’s all going to boil down to what that core [inflation] number is going to be next week and I think the markets are going to react accordingly.”
Data for August is seen as key to whether the Fed will hike at its September 15-16 meeting. Fed Governor Christopher Waller said on Thursday that if upcoming data confirms inflation pressures are cooling off, he is inclined to argue in favor of keeping interest rates steady.
Producer price inflation data is due next Thursday and consumer price inflation data is scheduled for next Friday. Economists expect the annual rate of core CPI inflation to ease to 2.4%, down 2.5% in July.
Elements of Friday’s jobs data also support slowing inflation, Dixon said.
“In today’s number the unemployment rate stayed steady but if you look at wages year over year, that’s the lowest since June 2021. So if Waller and [Fed Chairman Kevin] Warsh and [Fed Bank of New York President John] Williams, who I think are very influential, wanted to hang their hat on something, they could hang it on that,” Dixon added.
Fed funds futures traders raised bets on a September hike to 59%, up from 50% before the data.
The dollar index, which measures the greenback against a basket of six leading currencies, including the yen and the euro, rose 0.13% to 99.10. The euro fell 0.07% to $1.1616.
Against the Japanese yen, the dollar weakened 0.04% to 155.72.
The yen has surged this week as traders boost bets on more Bank of Japan interest rate hikes and is testing the 155.21 level, its high reached after last month’s U.S.-Japanese intervention. If the yen breaks through that level, it will take the currency to its strongest level since May 6.
Japan’s top currency diplomat, Atsushi Mimura, said on Friday he remained on alert to exchange-rate moves, maintaining a warning on Tokyo’s readiness to intervene in the market to combat excessive yen declines.
Traders are also speculating on whether Japanese investors, including insurance companies and pension funds, will pull investments out of U.S. Treasuries and into Japanese government bonds as Japanese bond yields rise.
JPMorgan said expectations for Japanese pension funds repatriation and BOJ rate hikes “look somewhat overdone” at the moment, but added that an unwinding of an estimated 16 trillion to 17 trillion yen ($102.4 billion to $108.8 billion) in yen shorts could send the dollar to a 142–146 range against the Japanese currency.
In cryptocurrencies, bitcoin fell 2.36% to $79,563.
