USD/JPY Drops Sharply Near 140.00 as USD Index Faces Sell-off ahead of US Employment Data

• USD/JPY has fallen sharply near 140.00 amid a sell-off in the USD index.

• The risk profile will be cautious as investors support another rate hike by the Fed given the resilience of consumer spending.

• The BoJ will continue its bond-buying operations to keep inflation above 2%.

The USD/JPY pair has slipped vertically near 140.00 in the Asian session. The downside movement in this asset was supported by a heavy sell-off in the US Dollar Index (DXY). Investors have cut long positions in the USD pair

/JPY as the approval of the increase in the US debt ceiling has reduced the appeal of the USD index and the in-depth discussion of changes to the Bank of Japan's (BoJ) Yield Curve Control (YCC) has given strength to the Japanese Yen.

S&P500 index futures have pared some of their earlier gains as investors anticipate high volatility in New York. Investors are expected to close positions over the long weekend, which could lead to wild moves. The risk profile will be cautious as investors support one more rate hike by the Federal Reserve (The Fed) given the resilience of consumer spending.

US government yields have fallen sharply as investors are optimistic that a two-year increase in the US debt ceiling will get approval from Congress. The 10-year US government yield has fallen below 3.76%.

This week, the US employment data will be closely watched. Initially, Tuesday's JOLTS Job Vacancy data will be released on Wednesday, which is expected to drop to 9.35 million versus the previous release of 9.59 million. Later on Thursday, the US Automatic Data Processing (ADP) Employment Change data (May) will be released. As forecast, the US labor market has added 170K new payrolls versus the previous addition of 296K. At the end of Friday, Nonfarm Payrolls (NFP) will be the main event.

On the Japanese Yen side, BOJ Governor Kazuo Ueda said on Tuesday, “The BOJ will patiently maintain easy monetary policy as there is still a long way to go to achieve a stable 2% inflation.” He further added that inflation is likely to bounce back after mid-2023 led by wage growth, and other factors, but there is uncertainty on the outlook. Meanwhile, the BoJ will continue its bond-buying operations.