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Japanese Yen eases off weekly high ahead of US NFP report as USD stabilises
- Buying interest lifts USD/JPY in Asian trade, but further gains appear constrained.
- The USD faces pressure from a recent sharp fall in US bond yields and hopes of diplomacy with Iran.
- Ahead of the key US NFP release, a hawkish BoJ could underpin the JPY and restrict the pair's advance.
A modest rebound takes USD/JPY towards the 158.00 region in the last hour, following a dip to a fresh weekly low near 157.25 during Friday's Asian session. The pair appears to have ended a two-day decline. Further gains, however, look limited as traders may prefer to await the crucial US monthly jobs data before initiating fresh directional positions.
Expectations for the US Federal Reserve's (Fed) policy trajectory will hinge significantly on the closely watched US Nonfarm Payrolls (NFP) report, with implications for US Dollar (USD) demand. Position adjustment ahead of this major data release is a key driver of USD/JPY's intraday recovery. Even so, muted US Dollar (USD) trading and the fundamental backdrop call for caution before taking aggressive bullish positions.
Expectations of renewed military strikes against Iran by US President Donald Trump receded after a decisive Democratic sweep in the US midterm elections. Crude oil prices consequently fell sharply, easing inflation concerns and prompting traders to scale back bets on a Fed rate hike in December. Meanwhile, a severe Wall Street sell-off sent investors towards safe-haven assets. US bond yields dropped to their lowest level in nearly two months, limiting the USD's scope for gains.
By contrast, expectations of a hawkish Bank of Japan (BoJ) could continue to underpin the Japanese Yen (JPY). Minutes of the BoJ's September meeting, released on Thursday, revealed agreement among policymakers that further policy rate increases and adjustments to the degree of monetary easing remained appropriate. This reinforces market expectations of a December interest rate hike, favouring JPY bulls and potentially restricting any substantial USD/JPY recovery.
What does the USD/JPY daily chart show?
Can USD/JPY Overcome Its Technical Barriers?
Trading below its 200-day Simple Moving Average (SMA) at 158.66, USD/JPY retains a slightly bearish near-term bias. As long as the broader price structure stays beneath this important average, rallies are likely to attract sellers. A move back above that barrier would be needed for bulls to reduce downward pressure and establish a more favourable outlook.
Initial support could emerge at the daily swing low near 157.25, followed by 157.00 and the bottom of the short-term trading range around 156.60-156.50. A decisive breach of this lower boundary would provide a fresh bearish trigger, leaving USD/JPY exposed to further losses.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Nonfarm Payrolls: Key Questions Answered
Published as part of the US Bureau of Labor Statistics' monthly employment report, Nonfarm Payrolls (NFP) track the change in US employment over the preceding month. The measure excludes jobs in the farming industry.
By indicating how effectively the Federal Reserve is fulfilling its mandate of full employment and 2% inflation, Nonfarm Payrolls can shape the central bank's policy decisions. A comparatively strong NFP reading signals that more people are employed and earning money, making higher spending more likely. Conversely, a relatively weak reading could suggest that people are finding it difficult to secure work. To counter high inflation arising from low unemployment, the Fed typically increases interest rates. When the labour market is stagnant, it generally cuts rates to stimulate activity.
The US Dollar typically strengthens when Nonfarm Payrolls exceed expectations and weakens when they fall short, reflecting a generally positive correlation between the two. This relationship stems from the influence of NFP on inflation, interest rates and monetary policy expectations. A stronger payrolls reading usually points towards tighter Federal Reserve policy, which supports the USD.
Gold prices and Nonfarm Payrolls generally move in opposite directions. An above-forecast payrolls reading therefore tends to weigh on Gold, while a below-forecast result tends to support it. Stronger NFP usually supports the USD. Since Gold, like most major commodities, is priced in US Dollars, a rise in the currency's value means fewer Dollars are needed to purchase an ounce of Gold. Higher NFP readings also typically contribute to higher interest rates. This reduces Gold's appeal relative to holding cash, which at least earns interest.
Other elements of the broader employment report can sometimes overshadow Nonfarm Payrolls, which represent just one component. For instance, when NFP has exceeded forecasts but Average Weekly Earnings has fallen short of expectations, markets have at times focused on the deflationary implications of weaker earnings rather than the potentially inflationary headline figure. The Participation Rate and Average Weekly Hours can also shape the market response, although this happens only in exceptional circumstances such as the “Great Resignation” or the Global Financial Crisis.
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