(Bloomberg) — Currency strategists see a strong chance of the yen testing its August high versus the dollar later Friday if payrolls data boost bets for a jumbo rate cut by the Federal Reserve this month.
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The yen “is where the action will be” if there is any surprise in the figures, said Gareth Berry, a strategist at Macquarie Group Ltd. The dollar will be “in deep trouble” versus Japan’s currency if the unemployment rate ticks up to 4.4%, according to Singapore-based Berry.
Strategists at JPMorgan Chase & Co. and Mizuho Securities Co. are also looking to the data — which may prove decisive in determining whether the Fed lowers borrowing costs by 25 or 50 basis points — as a potential catalyst for the yen to extend its rally.
The currency appreciated about 0.8% to 142.31 versus the greenback as of 3:31 p.m. in Tokyo, putting it on course for a fourth straight day of gains. That’s put the yen within easy striking distance of the 141.70 level it set during the bout of turmoil that gripped global markets on Aug. 5.
JPMorgan has added positions to its existing yen longs via put options on the prospect that the jobs data will fall short of economists’ estimates, triggering a 50 basis-point rate cut.
The expected outcome “gives us confidence to position for further support for funding currencies” including the yen, strategists James Nelligan and Patrick Locke wrote in a research note dated Sept. 5.
Options traders see an 85% chance of the yen appreciating beyond the Aug. 5 strong point in the coming week and a 48% probability that it will break 140, according to Bloomberg-compiled data.
“It could easily go down below 142,” said Shoki Omori, chief desk strategist at Mizuho in Tokyo. “If the momentum is there, testing 141 is realistic.”
Mahjabeen Zaman at Australia & New Zealand Banking Group Ltd., shared the same view.
With weaker-than-expected data, the dollar “will likely test lows seen in early August,” she said.
(Updates with yen extending its rally)
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