USD/JPY drops sharply to near 140.00 as USD Index faces selling action ahead of US Employment

• USD/JPY has dropped sharply to near 140.00 amid a sell-off in the USD index.
• The risk profile would be cautious as investors are backing one more interest rate hike by the Fed considering resilience in consumer spending.
• The BoJ will continue with its bond-buying operations to keep inflation steadily above 2%.

The USD/JPY pair has slipped vertically to near 140.00 in the Asian session. The downside move in the asset is backed by a sheer sell-off in the US Dollar Index (DXY). Investors have trimmed longs in the USD/JPY pair as a raise approval for the US debt-ceiling has trimmed appeal for the USD index and deep discussions about tweaking Bank of Japan’s (BoJ) Yield Curve Control (YCC) are providing strength to the Japanese Yen.

S&P500 futures have trimmed some gains posted earlier as investors are anticipating a sheer volatile action in New York. Investors are expected to wrap up long-weekend positions, which could bring wild movements. The risk profile would be cautious as investors are backing one more interest rate hike by the Federal Reserve (Fed) considering resilience in consumer spending.

The US Treasury yields have dropped sharply as investors are optimistic that a raise in the US debt-ceiling for two years will get passage from Congress. The 10-year US Treasury yields have dropped below 3.76%.

This week, US Employment data will be keenly watched. Initially, Tuesday’s JOLTS Job Openings data will be released on Wednesday, which is expected to decline to 9.35M vs. the prior release of 9.59M. Later on Thursday, US Automatic Data Processing (ADP) Employment Change (May) will be released. As per the estimates, the US labor market has added fresh 170K payrolls vs. the former addition of 296K. On late Friday, the Nonfarm Payrolls (NFP) would be the show-stopper event.

On the Japanese Yen front, BoJ Governor Kazuo Ueda said on Tuesday, “The BoJ will patiently maintain the easy monetary policy as there is still a distance to go to stable 2% inflation.” He further added inflation is likely to bounce back after the middle of 2023 led by wage growth, and other factors but there is uncertainty on that outlook. Meanwhile, the BoJ will continue with its bonds buying operations.