Yen Soars As U.S. Yield Tumbles, Dollar Soft Ahead Of NFP

The yen surged broadly overnight Thursday, while the dollar tumbled and U.S. treasury yield dropped sharply. The 10 year yield dived to as low as 1.999% before closing at 2.075%. The yen maintained broad based strength after Japanese finance minister Aso's comments, on which the USD/JPY dipped as low as 95.54. Aso said the government is "carefully watching" the rebound in the yen but "we don't have any immediate intention of taking any action, such as intervention. Focus was on Friday's U.S. non-farm payroll report

Markets expected the non-farm payroll to show 168k growth in May, compared to April's 165k. The ADP report released on Wednesday was a disappointment, and showed only 135k growth. compared to a forecast of 170k. The employment component of the ISM manufacturing dropped slightly to 50.1 in March. The employment component of ISM services also dropped to 50.1. Both readings indicate there was no expansion in the job market.

The Euro extended its rally against dollar Thursday. The ECB left the main refi rate unchanged at 0.5%. The deposit rate stayed at 0% and the marginal lending rate at 1%. Although the ECB lowered its forecast for the eurozone's economy to a contraction of -0.6% this year from March's estimate of -0.5%, it raised their projection for 2014 +1.1%, up +1% estimated in March. The central bank cut its 2013 inflation forecast to +1.4% from +1.6%. The 2014 estimate was unchanged at +1.3%. According to Draghi, the 17-nation bloc's inflation risks are "broadly balanced" and while risks to growth remained skewed to the "downside".
On the data front, Japan's leading indicator rose to 99.3 in April. German trade surplus came in wider than expected at EUR 17.7b in April. Swiss foreign currency reserves rose to CHF 441.4b in May. Canadian employment is expected to grow 18k in May, while the unemployment rate is expected to drop to 7.1%.