USD/JPY Surges To 132.50 As US Employment Data Supports Additional Fed Rate Increases

The USD/JPY pair has extended its recovery after a minor correction to 132.50 during the Asian session on expectations that the Federal Reserve will increase interest rates further. (Fed). The issuance of the record-low Unemployment Rate in the United States has allayed concerns that the Federal Reserve will continue to raise interest rates.

Despite escalating tensions between China and Taiwan, S&P500 futures retain nominal gains during the Asian session. The Taiwanese government has spotted 58 Chinese aircrafts around Taiwan Island, as well as continued excavating, which could affect market sentiment. The US Dollar Index (DXY) is anticipating a recovery as the robust US labor market has encouraged the Fed to raise interest rates at its May monetary policy meeting.

The US economy has added 236K new employment, which is close to the 240K that was anticipated. In addition, the unemployment rate decreased to 3.5% from 3.6% as anticipated. The US labor market remains constrained despite the Fed's rate hikes, and future rate hikes will likely be supportive. The Fedwatch instrument indicates that the likelihood of a further 25 basis point (bps) rate increase is close to 66%. In addition, the absence of news about additional banking crises is positive for the USD Index.

As reported by Nikkei and relayed by Reuters, former Bank of Japan (BoJ) vice-governor Hiroshi Nakaso hopes for a modification or end to the BoJ's bond yield control policy due to increasing side-effects such as the impact on the profits of financial institutions.

Ex-BoJ Nakaso believes that the massive monetary stimulus employed by ex-BoJ Haruhiko Kuroda during his tenure to bring inflation consistently close to the desired target was detrimental to commercial banks. Therefore, the elimination of Yield Curve Control (YCC) is necessary to prevent financial instability.