MUFG’s Michael Wan notes that stronger US labour data have lifted US yields and supported the US Dollar (USD), complicating prospects for near-term Fed rate cuts. He highlights upcoming US ISM Services, Fed Beige Book and Non-Farm Payrolls (NFP) as crucial for US rates and the US Dollar, with USD/JPY already near 160 and Japanese policy signals from Bank of Japan (BoJ) Governor Ueda in focus.

US data and BoJ guidance in focus

"With that context in mind, the US ISM Services data and Fed Beige Book out later today, coupled with the US Non-Farm Payrolls later this week will probably be more important than usual in gauging turning points in both US rates, the US Dollar, and with that Asian currencies as well."

"We already have the likes of USD/JPY reaching shy of the 160 mark, and we wouldn’t be surprised if the Finance Ministry jawbones the currency and maybe intervenes once again at those key levels."

"Nonetheless, the fundamentals as mentioned about sticky US yields, but more importantly coupled with still low Japan real yields and fiscal policy turning more expansionary remain the key drivers."

"Ultimately we think the BoJ has to act and hike rates for the trend in USD/JPY to change, and BoJ Governor Ueda’s speech later today could be important in that regard in signalling the path forward."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)