USD/JPY extends the advance towards 112.00 amid risk-on mood, ahead of NFP

• USD/JPY looks to build on Thursday’s impressive recovery, as 112.00 beckons.
• Optimism on US debt ceiling extension buoys market mood ahead of the key NFP.
• US dollar remains broadly subdued while Treasury yields hit four-month tops.

USD/JPY is looking to build onto Thursday’s solid recovery, with all eyes on the 112.00 figure, as investors remain cheerful heading into the all-important US NFP release.

The risk sentiment remains underpinned, as the US Senate receives the numbers to approve the procedural vote, after which the actual debt ceiling vote will proceed. The Asian indices follow Wall Street, awaiting the Chinese traders return from a week-long holiday break.

The US Treasury yields keep pushing higher amid Fed’s tapering expectations and rising inflation, with the benchmark 10-year yields sitting at the highest levels in four months above 1.58%.

Meanwhile, the downbeat Japanese Household Spending and Trade Balance data weigh on the local currency, adding to the upside in the spot. Markets are looking forward to Japan’s Prime Minister Fumio Kishida’s blueprint of his policy program that will be presented later on Friday.

However, the main risk event for USD/JPY remains the US NFP report, which will likely seal in the Fed’s tapering for November.

The US economy is expected to have added 488K jobs in September vs. 235K jobs created previously. A big miss on the jobs number could temper the Fed’s hawkish bets, sending markets into a tailspin.

At the time of writing, USD/JPY is trading at 111.69, flirting with two-day highs, adding 0.10% on the day.

USD/JPY: Additional levels to consider