[fm]: Yen Falls as Nikkei Rally Saps Haven Demand Ahead of U.S. Jobs

The yen weakened as the Nikkei 225 Stock Average broke above 20,000 for the first time since 2015 following a record close in U.S. equities, sapping demand for haven assets.

Pullbacks in the dollar-yen were shallow and Tokyo sales desks made note of a dilution in corporate sell orders near 111.50, which had capped advances since May 29, according to Asia-based FX traders who are not authorized to talk to the media. The greenback fell against most of its Group-of-10 peers as traders adjusted their positions ahead of U.S. non-farm payroll data.

"The higher dollar-yen is encouraging a further rally in the Nikkei which started with general risk-on sentiment," according to David Forrester, a foreign-exchange strategist at Credit Agricole CIB in Hong Kong. "Although a June Fed hike is heavily priced, it’s pretty flat beyond that. Stronger earnings data would lead the market to price further rate rises after June and lead to a more sustainable dollar rally.”

The Treasury curve flattened in Asia after data from the ADP Research Institute Thursday showed U.S. private payrolls rose 253,000 in May, beating estimates. U.S. non-farm payrolls probably rose 182,000 in May from 211,000 in the previous month, a Bloomberg survey showed. Fed fund futures based on effective rate put an 88 percent probability the U.S. central bank will raise rates in June.

• USD/JPY climbs 0.2% to 111.62 versus 111.31/68 range.
• Leveraged and macro buying seen on the way up, bids from latter near 111.40: traders.
• FinMin Aso says no change to Japan’s fiscal 2020 primary surplus goal.
• Nikkei 225 index up 1.3% to 20,113.
• AUD/USD gains 0.2% to 0.7389 versus 0.7373/90 range.
• Spot recovered from session low after local 10-year yields outperform their U.S. counterparts to move back toward a 20bps differential from 16bps earlier.
• Option related bids seen off A$1.19b of put strikes at 0.7375 expiring Tuesday.
• Bloomberg dollar index steady at 1,201.35; brent crude slips 0.4%.
• 10-year Treasury yield is steady at 2.22%.

By: Michael G. Wilson (Bloomberg News).

Photo: CMC Markets.

Review: Emerging Market Formulations & Research Unit, Flagship Records.