USD/JPY drops vertically to near 139.00 as USD Index extends losses, US NFP eyed

• USD/JPY has shown a sharp decline to near 139.00 amid weakness in the USD Index.
• A collaboration of upbeat US Employment and job market data would leave no reason for the Fed to a neutral policy consideration.
• BoJ Ueda confirmed that bond-buying operations by the central bank would continue in order to keep inflation steadily above 2%.

The USD/JPY pair has witnessed an intense sell-off and has dropped to near 139.00 in the Asian session. The asset attracted significant offers as the US Dollar Index (DXY) extended its downside below 104.20. The USD Index has dropped to near 104.15 as investors are optimistic that US debt-ceiling proposal would secure sufficient votes.

S&P500 futures have posted some gains in early Asia after a bearish Wednesday. The risk appetite of the market participants has improved amid a drop in appeal for the USD Index.

On Wednesday, US JOLTS Job Openings data outperformed expectations. Despite higher interest rates from the Federal Reserve (Fed) and tight credit conditions by US regional banks, the US job market seems healthy.

Going forward, the US Nonfarm Payrolls (NFP) data (May) will be of utmost importance. As per the preliminary report, fresh 190K payrolls were added in the labor market in May, lower than the additions of 253K made in April. The Unemployment Rate is increased to 3.5% vs. the former release of 3.4%. Annual Average Hourly Earnings are seen steady at 4.4%.

A collaboration of better-than-anticipated US Employment and job market data would leave no reason for Fed chair Jerome Powell for a neutral interest rate policy consideration.

On the Japanese Yen front, Bank of Japan (BoJ) Governor Kazuo Ueda has confirmed that bond-buying operations by the central bank would continue in order to keep inflation steadily above 2%.

About USD/JPY’s outlook, Economists at MUFG Bank believe that “The debt ceiling issue has been resolved and a strong jobs report at the end of the week would likely see markets price more fully a Fed rate hike on 13th June that would likely then lead to further USD/JPY buying.”

“If events fuel another quick move to the 145 level, above there would certainly be in the range of intervention. It would in addition serve to highlight another unwelcome by-product of YCC and could play a role in swaying Governor Ueda to scrap YCC later this year.”