USD/JPY Forecast: Dollar Regains Traction Following Jobs Report Decline
By Yohay Elam, Forex Crunch
The USD/JPY currency pair showed signs of resilience after a sharp decline triggered by a less-than-stellar U.S. employment report. Market participants have responded to shifting expectations regarding the Federal Reserve’s monetary policy outlook, leading to a recovery in the dollar’s strength relative to the yen. As traders assess global economic conditions and central bank stances, the USD/JPY remains a focal point in forex markets.
This article analyzes the recent performance of the USD/JPY pair, considers key fundamental and technical factors, and outlines what traders should watch in the coming weeks.
US Jobs Report: Weak Numbers Shake Dollar Then Stabilize
The Bureau of Labor Statistics’ latest report showed disappointing payroll growth, fueling initial bearish sentiment around the U.S. dollar. However, deeper analysis of labor market indicators led to a partial reversal of the slump in USD/JPY.
– Nonfarm Payrolls (NFP) rose by just 187,000 in July, falling short of the expected 200,000 gain.
– The unemployment rate ticked down to 3.5 percent, slightly better than forecasts of 3.6 percent.
– Average hourly earnings climbed 0.4 percent month-over-month and 4.4 percent year-over-year, indicating continuing labor market strength despite slower job growth.
The initial reaction from forex traders was to price in the possibility that the Federal Reserve would adopt a more dovish stance, particularly as inflation pressures appear to be easing. However, strong wage growth and low unemployment provided a counterbalance, leading to renewed dollar buying later in the session.
Federal Reserve Outlook: Hawkish Pause or Final Hike?
With inflation cooling and economic data sending mixed signals, speculation around the Federal Reserve’s next move continues to drive USD/JPY sentiment.
– Fed Funds Futures pricing indicates markets expect the Federal Reserve to hold rates steady at its next meeting.
– The probability of another rate hike later in 2025, as measured by CME FedWatch, has decreased mildly, reflecting the weaker payroll report.
– However, higher-than-expected wage inflation and still-strong job openings suggest that rate cuts remain unlikely in the near term.
Fed Chair Jerome Powell has consistently emphasized a data-dependent approach. This positions employment reports, inflation data, and consumer spending figures as central to future moves. For USD/JPY, any indication that the Fed may raise rates once more in 2025 could offer further upside for the pair.
Japanese Yen Fundamental Landscape
On the other side of the cross, the Japanese yen remains vulnerable due to economic stagnation and the Bank of Japan’s ultra-dovish policy stance. The BoJ has kept interest rates negative for years and only recently began modest adjustments to its yield curve control (YCC) policy.
– GDP growth in Japan remains modest, with weak domestic demand and an aging population weighing on long-term prospects.
– Core inflation has shown signs of picking up, but most of the increase has been driven by higher import costs triggered by a weaker yen and global commodity price pressures.
– BoJ Governor Kazuo Ueda has maintained a cautious tone, signaling that sustainable inflation above 2 percent is necessary before any major policy normalization.
Without stronger signals from domestic inflation or structural growth reforms, the BoJ is unlikely to shift from its dovish approach in the near term. As a result, the yen continues to act as a funding currency in global carry trades, making it vulnerable to bouts of USD strength.
Technical Analysis: USD/JPY Bounces Off Support
From a technical perspective, the USD/JPY pair’s price movement indicates consolidation above key support levels, followed by a bounce that suggests bulls remain in control over the medium term.
– The pair found support near 141.00, a psychological level and former resistance-turned-support, before rebounding toward 143.
– The 50-day simple moving average (SMA) held firm
Explore this further here: USD/JPY trading.