USD/JPY nears key resistance after weak Japan household spending data

The USD/JPY price is rising for the third straight day as investors wait for the July non-farm payrolls (NFP) and after the relatively weak economic data from Japan. The pair rose to 109.85, which was about 1% above the lowest level this week.

Japan household spending lag

The USD/JPY tilted upwards after the latest Japan household spending data. According to the statistics agency, spending declined by 3.2% in June after falling by 2.1% in May. This decline was significantly lower than the median estimate of a 2.0% increase. 

As a result, spending declined by 5.1% year-on-year, which was the worst performance since March. The spending has been positive in the past three straight months. Household spending is an important number since it is the biggest component of the Japanese GDP.

The USD/JPY also rose after the weak average cash earnings numbers. The earnings declined by 0.1% in June after rising by 1.9% in the previous month. The overall wage income of employees declined by 0.1%.

Recent numbers from Japan have been relatively mixed. While the unemployment rate has declined to 2.9%, the country is still struggling from low inflation. At the same time, the latest manufacturing and services PMI numbers were relatively strong. 

Still, the Bank of Japan (BOJ) is expected to hold interest rates and quantitative easing steady in the September meeting. 

The pair will next react to the latest US NFP data scheduled for Friday. With many businesses ripening, the expectation is that the economy added more than 870k jobs after adding more than 850k in the previous month. 

Still, data by ADP showed that the economy added 330k jobs. Therefore, there is a possibility that the NFP numbers will miss estimates. The unemployment rate is expected to drop from 5.9% to 5.7%.

USD/JPY technical analysis

The USD/JPY pair has rebounded after it dropped to a low of 108.75 early this week. It has moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has risen to above 50. It is approaching the upper side of the descending channel illustrated in purple. 

However, it has formed what looks like a head and shoulders pattern. Therefore, there is a possibility that the price will retreat as bears target the next key support at 109.00.