Japanese Yen firms as US Dollar pares post-NFP gains

• USD/JPY starts the week lower as broad US Dollar weakness supports the Japanese Yen.
• Falling Oil prices ease US inflation concerns and drag the 10-year Treasury yield near a two-month low.
• Traders eye US inflation data for clues on a December Fed hike, while the BoJ signals scope for further tightening.

USD/JPY starts the week on the back foot as broad-based weakness in the US Dollar (USD) lends support to the Japanese Yen (JPY). At the time of writing, the pair trades around 157.91, down 0.36% on the day.

The Greenback comes under pressure as Oil prices extend their decline after US President Donald Trump downplayed the likelihood of renewed strikes on Iran. West Texas Intermediate (WTI) trades around $86 a barrel, down more than 3% on the day.

The pullback in crude prices eases some inflation concerns and helps keep US Treasury yields in check. The benchmark 10-year US Treasury yield is down 0.33% on the day at 4.83%, near a two-month low.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.80 after climbing to 102.36 following the stronger-than-expected US jobs report released on Friday.

US Nonfarm Payrolls (NFP) rose by 165K in October, more than double the 65K forecast, while the Unemployment Rate edged down to 4.1% from 4.2%. The figures reinforce expectations of another Federal Reserve (Fed) rate hike, with traders pricing in roughly an 80% chance of a quarter-point increase in December.

Brown Brothers Harriman’s Elias Haddad notes that the Dollar has surrendered part of its post-payrolls advance, with “USD pared back some of Friday’s strong October non-farm payrolls gains.” He adds that, looking ahead, “robust US economic activity, favorable labor market conditions and sticky underlying inflation back the Fed’s hawkish bias, keeping rate differentials supportive of USD,” reinforcing the view that upcoming US data will be critical in shaping expectations for the Fed’s policy path.

The US Consumer Price Index (CPI) is due on Tuesday, followed by the Producer Price Index (PPI) later in the week. A hotter-than-expected CPI reading could strengthen those bets and lend the Dollar some support.

In Japan, the Bank of Japan (BoJ) remains on a gradual tightening path. The central bank held its policy rate at 1.25% in October but signalled it was prepared to raise rates further. Board member Hajime Takata favoured a hike to 1.50%, while Governor Kazuo Ueda warned that inflation could overshoot the BoJ’s 2% target.

Separately, Japan’s Finance Ministry disclosed on Monday that authorities spent ¥7.98 trillion buying Yen on July 30, a record for a single day, according to Reuters. The scale of the operation helps explain why traders remain wary of further intervention when USD/JPY pushes higher.