USD/JPY's rebound from its post-payrolls lows suggests bulls have not yet given up on the pair.

The pair plunged in two waves after a much weaker-than-expected U.S. jobs report and intervention-related comments from Japan's Finance Minister Satsuki Katayama.

U.S. nonfarm payrolls unexpectedly fell by 23,000 in July, while prior-month figures were revised sharply lower, weighing on the dollar as expectations for further Fed tightening receded. Soon after the U.S. data, Finance Minister Katayama said in an interview that Tokyo and Washington agree the yen has been distorted by speculative carry trades and they would not hesitate to intervene again if necessary.

The timing of the interview is notable. While it coincided with the release of the weak U.S. jobs data, the comments may have been aimed at pushing back against USD/JPY's post-intervention rebound from 155.20 to above 158.00, as well as recent reports that the ECB was informed only after the U.S. carried out last week's dollar-selling, yen-buying intervention.

Nonetheless, one of the drivers behind the carry trade, strong risk appetite, appears to be helping USD/JPY rebound from its 156.68 low. Equities remain higher and U.S. 2-year Treasury yield has recovered part of its post-payrolls decline after the Fed's Thomas Barkin stressed the need to return inflation to 2% and downplayed the significance of the jobs report. As a result, next week's CPI data may prove more important for shaping Fed expectations.

USD/JPY has climbed back above 157.00 and is once again targeting the key 158.00 pivot and nearby 200-day moving average. A break above 158.56, the 38.2% retracement of the 163.99 to 155.20 decline, would bring the cloud base near 158.92 into focus and likely renew concerns among Japanese officials.

For bears, the break below the recent series of higher lows is encouraging, leaving scope for a more negative outlook if the pair closes below 157.00.
Yen


(Robert Fullem is a Reuters market analyst. The views expressed are his own.)