USD/JPY capped? Lower may be path of least resistance
July 8 (Reuters) -USD/JPY fell another leg Friday on a weaker-than-expected U.S. jobs report which sent Treasury yields lower nL1N3IV0WE, nL1N3IX0QE. With yen-fundedsummer carry trades finallyon the wane, JPY could be on the cusp of a significant upwardretracement.
America's coolingjob market has put a September Federal Reserve rate cut back on the table FEDWATCH. Some expect another cutin December should the labour market cool further.
The fall in U.S. yields following the jobs report appears to be cooling JPY-funded carry demand for the dollar as well. In fact, the rally in U.S. Treasuries may see some players take profits on their holdings for capital gains.
Japanese investors have already been lightening up their holdings of U.S. and other notes and bonds recentlywith Ministry of Finance data out Monday showing net sales of 3.35 trillion yenin June. Profit-taking has also emergedin foreign stocks with a net 1.005 trillion yensold in June.
In contrast to U.S. rates, Japanese government bond yields have been rising lately. The Bank of Japan will releasea schedule for tapering bond purchases at its end-July meeting nL4N3IU06R, nL4N3IF082, and eventually beginhiking interest rates gradually nL1N3IB1A5.
Despite the U.S. dollar likely remaining strong on a broad front nL1N3IX08M, a USD/JPY ceiling may be in place following the July 3 highof 161.96. Any major retracement lower could send spot initially towards 153.67, the 38.2% Fibonacci retracement of the December to July movefrom 140.27 to 161.96.
For more click on FXBUZ
USD/JPY weekly: https://tmsnrt.rs/3Lfic5N
Yield on US Treasury 2s - weekly: https://tmsnrt.rs/3LdQkPu
Yield on JGB 10s - weekly: https://tmsnrt.rs/4cw3QKo
Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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