USD/JPY Corrects Slightly Below 161.00 As Japan’s Intervention Fears Intensify, US NFP Eyed

The USD/JPY pair extends its correction to near 161.80 in Friday’s European session. The asset comes under pressure as fears of Japan’s intervention in the FX domain due to one-sided excessive moves, which have led to a sharp weakness in the Japanese Yen and a sheer sell-off in the US Dollar (USD) due to firm speculation that the Federal Reserve (Fed) to begin lowering interest rates from the September meeting.

The Japanese Yen struggles to gain ground even though Bank of Japan (BoJ) policymakers have advocated tightening monetary policy further. The weak Japanese Yen has prompted consumer inflation expectations as Japan’s exports have become competitive globally, and import costs have increased significantly.

However, a sharp contraction in Overall Household Spending in May has cast doubts over BoJ’s rate-hike path. The economic data unexpectedly declined by 1.8%. Economists forecasted that households’ purchasing power would have grown at a slower rate of 0.1% from the prior release of 0.5%.

Meanwhile, the improved probability that the Fed will start reducing interest rates in September has increased investors' risk appetite. S&P 500 futures have posted nominal gains in Asian trading hours.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has slid further and has posted a fresh three-week low to near 105.00. 10-year US Treasury yields rise to near 4.36% ahead of the United States (US) Nonfarm Payrolls (NFP) data, which will be published at 12:30 GMT.

According to expectations, 190K workers were hired in June, significantly lower than May’s reading of 272K. The Unemployment Rate is estimated to have remained steady at 4%.

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