Forex Market: USD/JPY hits two-month highs ahead of US non-farm payrolls data

The yen slipped to the weakest level in more than two-months against the US dollar, ahead of US data experts forecast will show services industries and employment strengthened, backing the case for the Federal Reserve to keep on reducing stimulus.

USD/JPY hit a session high at 104.07 at 03:35 GMT, after which consolidation followed at 103.93, adding 0.05% on a daily basis. Support was likely to be received at April 2nd low, 103.59, while resistance was to be met at January 23rd high, 104.84.

Demand for the US dollar was supported as a report by Automatic Data Processing Inc. (ADP) showed yesterday, the US private sector added 191 000 workers last month after February’s number was revised up by 39 000 to 178 000, However, analysts’ forecasts called for a 195 000 gain in March.

The ADP report usually comes out two days before the official employment report by the Bureau of Labor Statistics (BLS), thus, providing clues over the tendency in nation’s non-farming sector. The government report scheduled to be released tomorrow may show private payrolls rose by 200 000 in March, the most in four months, according to the median experts’ forecast. A separate report by the Institute for Supply Management may show its non-manufacturing index surged to 53.5 last month from 51.6 in February.

“The market is becoming optimistic on the nonfarm payrolls report tomorrow,” said Kumiko Ishikawa, a currency analyst at Gaitame.com Research Institute Ltd. in Tokyo, cited by Bloomberg. “The dollar’s upward trend versus the yen will continue if the number comes in pretty solid.”

In addition, a report by the US Census Bureau revealed that nation’s factory orders rose 1.6% in February, after a revised 1% drop in the previous month, which was higher than previously reported and exceeding analysts’ forecasts for a 1.2% gain. The indicator reflects current industrial activity in the country and also provides clues over sector development in the future.

Meanwhile, earlier in the week, Japanese companies showed confidence in the government efforts to fight against deflation, which persists in the country for over 15 years. According to the Bank of Japan’s Tankan monthly survey, respondents expected consumer prices to rise 1.5% in one year time and 1.7% in three years.

A government report showed last week that the Japanese jobless rate declined to 3.6% last month, the lowest in more than six years, from 3.7% in January. The jobs-to-applicants ratio also increased to 1.05 last month from 1.04 in January, in line with analysts’ estimates and matching the highest since August 2007. This indicates that there were 105 job offers for every 100 job seekers.

The number of unemployed people declined in February for the 45th consecutive month, dropping by 450 000 from a year ago to 2.32 million people, data from the report revealed. All these data points, added to signs of a robust labor market, which in turn will lead to higher consumer spending.

Moreover, consumer price inflation in Tokyo surged 1.3% in March from a year ago, beating projections for a 1.2% rise and following 1.1% gain in the prior month.

Core consumer price inflation, which excludes fresh food, also advanced by 1% this month from the previous year, more than the 0.9% increase predicted by analysts and after a 0.9% gain in the previous month.