As we mentioned yesterday, there has been a disconnect so far this year between much higher US bond yields and the spot price of USD/JPY. Various banks have models which suggest that USD/JPY should be somewhere between 87.50 and 89.50 based on past interest rate differentials between US and Japanese yields.
My guess is that if we get an upbeat US employment report tomorrow, the gap between the present spot rate in the 83.20s and the much higher projected rate based upon past experience. Traders are somewhat reluctant to bet the farm on the notoriously fickle ADP report (remember last month when payrolls were miles weaker than expected.
Any thing north of 225,000 new jobs should reward USD/JPY longs with at least a test of the top of recent ranges at 84.50 if not the barriers rumored at 85.00. A disappointing will see a slide back toward 81.75/82.25…