BoJ’s mettle after yield surge charges the US dollar

Friday’s Asia-Pacific outlook

A stronger US dollar, driven by hawkish Fedspeak and perhaps some risk aversion ahead of tomorrow’s US non-farm payrolls report, is dampening market sentiment. Asia-Pacific stocks look ready to open mostly lower after a selloff on Wall Street, where the benchmark S&P 500 closed 1.02% lower.

Bad news from AMD followed shortly after the closing bell, with the chipmaker warning that third-quarter numbers are tracking far below initial guidance.

In a greener corner of the market, cannabis stocks surged higher after it was reported that US President Joe Biden is set to pardon all low-level possession convictions for marijuana on a federal level. The largest cannabis ETF, AdvisorShares Pure US Cannabis ETF, surged 34% higher, its best single-day gain on record. However, most of those stocks remain lower from the start of the year.

The Japanese yen is above the 145—“line in the sand”-- level against the dollar. If prices continue to rise, it will test the Ministry of Finance’s resolve. Although traders have trimmed their short bets, options positioning via currency futures show JPY traders continue favoring puts over calls.

Given the dollar’s fundamental backing and assuming it continues, which it looks like it will, Japan will have no other option but to expense a sizable portion of its balance sheet or abandon the fight. The island nation is set to release a data dump for August, which includes household spending, average cash earnings, and household spending figures.

Analysts see household spending increasing to 6.7% from a year prior. Iron ore prices in China remain weak, around the $95 level. That is keeping the Aussie dollar weighed down.

All eyes will turn to the US jobs report, which may induce significant volatility across financial markets, as the number may influence FOMC rate hike bets.

Japanese yen technical outlook

The 145 level is under siege, which may elicit a response from Japan. A sharp upside break would put the 1998 high at 147.65 in focus. A pullback may see support at the rising 12-day Exponential Moving Average (EMA).

USD/JPY daily chart

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