Japanese yen jumpy ahead of US payrolls

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The Japanese yen showed a bit of strength earlier but has pared these gains. In the European session, USD/JPY is trading at 15141, up 0.04%

The markets are bracing for a sharp drop in US nonfarm payrolls for March. Job growth hit 353,000 in January but then fell to 275,000 in February and the market estimate for March stands at 200,000. The labour market has stood up well in the face of elevated interest rates but another decline in the March data would indicate a clear downtrend in job growth, which would support the Federal Reserve deciding to lower interest rates sooner rather than later.

When can we expect the Fed to take the plunge and start lowering interest rates? That is a tough one to answer, especially because not all Fed members are on the same page, as evidenced by comments this week. Fed Chair Jerome Powell said that although inflation has been bumpy, he expected the Fed to lower rates “at some point this year”. Cleveland Fed President Loretta Mester echoed this position, saying that the Fed was becoming more confident that it could lower rates in the next few months.

Minneapolis Fed President Neel Kashkari sounded more hawkish, as he questioned if rate cuts were needed this year “if we continue to see inflation moving sideways”. Kashkari does not have a vote on monetary policy but his comments indicate that a rate cut is not a given and will depend on the data, in particular inflation.

In Japan, household spending rebounded in February with a gain of 1.4% y/y, compared to -2.1% in January. This beat the market estimate of 0.5%. On an annualized basis, household spending dropped 0.5%, following a 6.3% decline in January and beating the market estimate of -3%. The 0.5% decline marks a 12th straight drop in household spending but the rebound leaves room for optimism.

USD/JPY is testing resistance at 151.41. Above, there is resistance at 151.71

There is support at 151.06 and 150.76