Asia Set for Bearish Day After Payrolls, Yen May Gain: Analysts

(Bloomberg) -- Asian stocks are likely to come under pressure as the weaker than expected US payrolls report on Friday quashes earlier optimism over an economic soft landing, analysts say.

The yen is likely to be a beneficiary of potential risk aversion, though it’s unlikely to strengthen as far as 140 per dollar, said Jun Kato, chief market analyst at Shinkin Asset Management Co. in Tokyo. The US jobs numbers are set to weigh on the dollar as they boost bets on Federal Reserve interest-rate cuts, said Hirofumi Suzuki, chief foreign-exchange strategist at Sumitomo Mitsui Banking Corp. in Tokyo.

Here is a selection of comments from analysts;

Capital.Com Inc. (Kyle Rodda, senior market analyst in Melbourne)

Most crucially the US dollar rallied, in a sign that the markets no longer believe in a US economic soft landing and are positioning for a tightening of financial conditions typical of a recession.

Asian markets are set for a very bearish session, with futures tumbling and anxiety heightened about similar turmoil to what happened in August after the non-farm payrolls.

Shinkin Asset Management Co. (Jun Kato, chief market analyst in Tokyo) 

I don’t think the US jobs report was that bad. However, the US stock market was weak and USD/JPY was heavy on the upside at the 143 yen level, so risk aversion is likely to prevail again this week.

Since the labor market was not as much of a major disappointment, despite risk aversion, I do not think USD/JPY will move below 140 yen.

Sumitomo Mitsui Banking Corp (Hirofumi Suzuki, chief foreign-exchange strategist in Tokyo) 

Slightly weaker-than-expected US jobs report will not prompt the Fed to cut rates by 50 basis points at its September meeting. However, together with the past revisions, the result leaves the possibility of a 50 basis-point rate cut, depending on indicators from next month onward.

The result, which leaves expectations for a significant rate cut in the future, will put downward pressure on the dollar in the foreign-exchange market.

In particular, USD/JPY is likely to move lower in the near term due to the increased volatility in Japanese equities since last month. Depending on how the stock market performs, there is a possibility that dollar could break below 140 yen by the end of the week.

Convera Europe SA (Boris Kovacevic, goal macro strategist)

Investors hoping to get some clarity on the trajectory of the US labor market and therefore Fed policy from the non-farm payrolls report have been disappointed.

Weaker US growth and heightened expectation of aggressive Fed easing are denting the US dollar’s appeal and are helping the Japanese yen push below 143.

The US economy is cooling and will eventually lead to lower policy rates. These factors will support the yen. Japanese equities could stomach a rising yen as long as the global soft landing narrative is intact. Once it starts falling apart, the pressure from an appreciating currency and weaker global growth would weigh on equities.

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