Japanese Yen stays under pressure as resilient US data lift USD/JPY

• USD/JPY extends gains as firm US data lifts the Dollar and Treasury yields.
• US labour data ease concerns about a slowdown in the labour market.
• China-Japan tensions and soft wage growth keep the Yen on the defensive.

The Japanese Yen (JPY) trims earlier gains against the US Dollar (USD) on Thursday, as the Greenback strengthens broadly following the latest US economic releases. At the time of writing, USD/JPY trades around the 157.00 mark, pushing higher for a third consecutive day.

Data released by the US Department of Labor showed Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 and up from the previous week’s revised reading of 200,000.

Continuing Jobless Claims rose to 1.914 million from 1.858 million, while the four-week moving average of Initial Jobless Claims fell to 211,750 from 219,000, reinforcing signs of a still-resilient US labour market.

The US Dollar also drew support from a sharp improvement in the US trade balance. Data released by the Bureau of Economic Analysis and the US Census Bureau showed the Goods and Services Trade deficit narrowed to $29.4 billion in October, well below market expectations of $58.9 billion and sharply improved from the previous month’s revised shortfall of $48.1 billion.

The reading marked the smallest deficit since June 2009, as imports fell to a 21-month low and exports rose to a record high amid tariff-driven volatility. 

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 98.80, holding close to one-month highs alongside rising US Treasury yields.

Taken together, the latest US data have helped ease concerns about a slowdown in the labour market, supporting the view that the Federal Reserve (Fed) can afford to remain patient. The CME FedWatch Tool shows markets assigning around an 88% probability that interest rates will be left unchanged at the January 27-28 meeting.

Still, investors continue to price in two rate cuts later this year, with Friday’s Nonfarm Payrolls (NFP) report likely to guide near-term expectations.

In Japan, the Yen is also facing modest pressure from escalating tensions with China. Beijing has recently imposed restrictions on exports of so-called “dual-use” items to Japan, citing national security concerns, and has also launched an anti-dumping investigation into dichlorosilane imports from Japan, a chemical used in semiconductor production.

On the data front, Japan’s labour cash earnings growth remained soft in November, rising just 0.5% YoY, well below market expectations of 2.3% and easing sharply from 2.6%.