The Japanese yen remains under pressure. USD/JPY gained 1.92% last week and has extended its gains today. In the North American session, USD/JPY is trading at 140.54, up 0.29%.  US markets are closed for the Labour Day holiday, limiting yen losses. However, with US yields on an upswing and the US dollar showing broad strength, the ailing yen could see further losses this week.

Japan releases Household Spending on Tuesday. The market consensus stands at 4.2% YoY for July, following the 3.5% gain in June. An increase in household spending would point to stronger domestic demand, which is critical for Japan’s fragile economy. The Bank of Japan will certainly welcome stronger domestic activity, but is unlikely to shift its ultra-accommodative policy until it is convinced that wage growth is rising. This would be an indication that inflation is being driven by domestic activity rather than the price rise in imports, particularly food and energy. The BoJ has vigorously defended its yield curve control policy, which has kept JGB at ultra-low rates. This has put the depreciating yen at the mercy of the US/Japan rate differential. With that rate widening, the path of the yen continues to point southwards and we could soon hear talk of dollar/yen approaching the 145 level.

The highly-anticipated US nonfarm payrolls on Friday was almost a non-event, as the economy produced a solid 315 thousand new jobs, edging above the forecast of 300 thousand. The reading is expected to enable the Fed to continue its aggressive rate-tightening cycle as it relies on a robust US labour market.

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USD/JPY Technical

• USD/JPY has support at 140.12 and 138.91
• The next resistance line is at 141.84, followed by a monthly resistance line at 144.73