- USD/JPY moves in on the 106.20s as the greenback firms on signs of economic recovery.
- Traders monitoring for signs of further USD weakness and new Japanese leadership.
USD/JPY is currently trading at 106.23 and higher on the day by some 0.28% as dollar bulls take back control.
The US dollar has recovered in style since the start of the week’s surprise ISM Manufacturing beat which signals the US economic recovery is on the right track.
US manufacturing expanded in August at its fastest pace since late 2018, with the ISM’s manufacturing index rising to 65 from 54.2 in July.
The data helped the US dollar to get off the floor following the Federal Reserve’s announcements last week that it intends to allow inflation to exceed the 2% target and for the unemployment rate to run low before seriously considering a rate hike.
Meanwhile, the yen was stronger at the start of the week due to the market’s reaction to the news of the resignation of Japanese PM Abe.
Markets sold Japanese equities and bought the JPY and are on the lookout for hints on how much of Abenomics will be erased after the end of the Abe era.
Looking ahead for the week, eyes will be fixated on the US Nonfarm Payrolls.
If the USD fails to extend its gains, it could quickly come back under pressure, especially on a dismal jobs report.
Considering the safe-haven allure of the yen, it may be a key beneficiary of additional USD weakness.
At the start of the week, the outlook was not bullish for the pair considering the market’s willingness to get out of the dollar.
The above analysis is taking into consideration a bearish USD environment. However, the tables could be turning and reduced risk should be applied in uncertain times leading into the US jobs report.