The EUR/USD currency pair hovered near 1.0400 on Friday, as global markets turned their attention to the US nonfarm payrolls report. Meanwhile, the Japanese yen experienced a downturn, despite an unexpected surge in household spending in Japan, which was the strongest since August 2022. The yen had previously jumped 1.9% and reached a three-month high during a remarkable two-day rally. However, it found itself in negative territory with the USD/JPY trading at 151.94, marking a 0.39% increase on the day.
Japan's household spending jump was primarily fueled by robust wage gains in December, largely driven by bonuses. This monthly gain of 2.3% surpassed the modest 0.4% increase seen in November, catching market analysts by surprise. Despite these gains, Japan's households continue to battle high inflation rates, which have put pressure on the economy. Nevertheless, real wages, adjusted for inflation, rose for a second consecutive month in December, an encouraging sign for the Japanese economy.
The Bank of Japan's recent interest rate hikes have played a pivotal role in shaping the economic landscape. With further rate hikes anticipated in either May or August, the monetary policy outlook remains closely watched. These developments come as the Federal Reserve is projected to cut interest rates only once or twice this year. Any unexpected shifts in the labor market could influence the Fed's rate cut plans, with the nonfarm payrolls report being a key indicator.
The US nonfarm payrolls report, scheduled for release soon, is expected to play a crucial role in guiding market expectations. Economists forecast a market estimate of 170 thousand jobs for January. Investors will be closely monitoring this data for any surprises that could sway the Federal Reserve's policy decisions.