- USD/JPY struggles to capitalize on Friday’s modest rebound from the post-NFP trough.
- The divergent BoJ-Fed expectations and looming JPY intervention risks cap the major.
- Geopolitical uncertainties revive demand for the safe-haven USD, supporting the pair.
The USD/JPY pair kicks off the new week on a subdued note, stalling Friday's modest bounce from sub-157.00 levels, touched in reaction to the weak US employment details. Spot prices, however, remain confined in a familiar range held over the past week or so and currently trade around 157.70-157.75 region, nearly unchanged for the day.
The closely-watched US Nonfarm Payrolls (NFP) report showed that the economy added only 29K jobs in September, compared to the previous month's downwardly revised reading of 133K. Adding to this, the Unemployment Rate edged higher to 4.2%, and wage growth also cooled to the 3% YoY rate. This comes on top of soft US PCE data and further eased pressure on the Federal Reserve (Fed) to hike interest rates later this month. In contrast, traders have been pricing in a greater chance that the Bank of Japan (BoJ) will hike interest rates again as soon as October, which, along with looming Japanese Yen (JPY) intervention risks, acts as a headwind for the USD/JPY pair.
Fed hike pressure eases on softer US data but December move still seen
Analysts at ABN Amro judge the latest US labour market report as “consistent with our base case,” arguing that “the apparent resurgence in the labour market over the previous two reports was somewhat of a mirage.” They highlight that “the three-month average of 51k is solid given labour supply, but it does not indicate a hot or tight market,” and stress that the softer tone in employment, “especially alongside the downside surprise in the PCE report earlier this week, removes the pressure on the Fed to hike in October.”
However, ABN Amro still anticipates further tightening later in the year, stating that “we still expect persistent inflationary pressure from the energy shock to prompt one more Fed hike in December, for reasons similar to those in September: to prevent pass-through to consumer prices and wages.”
Meanwhile, the CME Group's FedWatch Tool indicates that traders are still pricing in over an 80% chance that the US central bank will raise borrowing costs by the end of this year amid energy-driven inflation risks. Hence, investors will closely scrutinize FOMC Minutes, due on Wednesday, for more cues about the future policy path. In the meantime, geopolitical uncertainties stemming from the ongoing Middle East conflict and the widening Russia-Ukraine war revive demand for the safe-haven US Dollar (USD) during the Asian session on Monday. This, in turn, offers some support to the USD/JPY pair, warranting caution for aggressive bearish traders.
USD/JPY 4-hour chart
Technical Analysis
The USD/JPY pair keeps the near-term bias constructive above the 100-period Simple Moving Average (SMA) dynamic support at 156.72. This is followed by the 156.40-156.35 horizontal zone, where buyers have room to defend the uptrend if a corrective pullback unfolds. On the top side, a move beyond 158.00 might confront immediate hurdle near the 158.40 region, above which spot prices could make a fresh attempt to conquer the 159.00 mark and resume the prior uptrend from the September monthly swing low.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.