USD/JPY Weekly Forecast: Labor Market Data Strengthens Case for Dovish Fed
Original source: Kenny Fisher, Forex Crunch
Link: https://www.forexcrunch.com/blog/2025/09/06/usd-jpy-weekly-forecast-labor-market-data-bolsters-dovish-fed/
The US dollar experienced a wobble against the Japanese yen over the past week, mostly influenced by sluggish economic indicators, especially from the labor market. The USD/JPY pair finished last week with minor weekly losses, falling by about 0.7%. Mixed economic data, dovish tones from Federal Reserve officials, and moderate responses from Japan’s central bank shaped the trajectory for one of the most-watched currency pairs in global forex markets.
Labor market softness in the United States has reinforced the idea that the Federal Reserve may adopt a more dovish stance in the coming months. In contrast, while the Bank of Japan (BoJ) remains highly accommodative, Governor Kazuo Ueda’s recent comments have introduced the potential for tighter policy if inflation trends remain in line with central bank expectations.
Here is a comprehensive look at the past week’s performance of USD/JPY, the key economic themes driving price action, and an outlook for the upcoming trading week.
Summary of Last Week’s Developments
The currency pair showed a moderate bearish tone as traders weighed a slew of economic indicators. Let’s examine the most important developments:
US Economic Indicators:
– ISM Manufacturing PMI came in at 47.6 for August, missing estimates and marking a contraction (sub-50 reading) for a 10th straight month. The forecast was a slightly higher 47.0, and July’s figure was already weak at 46.4.
– ISM Services PMI surprised to the upside with a reading of 54.5, marking the eighth consecutive month of expansion. A figure above 50 indicates growth in the sector.
– JOLTS Job Openings showed a drop in available jobs, reinforcing signs of cooling in the labor market.
– Nonfarm Payrolls (NFP) came in at 187,000 for August, slightly above expectations of 170,000. Nevertheless, downward revisions to previous months and a rise in the unemployment rate to 3.8% contributed to a dovish interpretation.
– Average Hourly Earnings climbed 0.2% in August, lower than the projected 0.3%. This indicates slowing wage growth, which may reduce pressure on inflation.
Federal Reserve Positioning:
– Fed officials continue emphasizing a data-dependent approach to future rate decisions.
– Several members of the Federal Open Market Committee (FOMC), including Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic, expressed cautious optimism about inflation but showed no rush to raise interest rates further.
– The labor cooling trend makes a September pause more likely, pushing market expectations toward neutrality or gradual easing in the coming quarters.
Japanese Economic and Central Bank Developments:
– Japan’s economy contracted slightly in Q2, with GDP shrinking by 0.5% amid weaker exports and reduced capital investment.
– BoJ Governor Kazuo Ueda commented that if inflation trends remain persistent, the central bank may “have enough information by year-end” to consider modifying its ultra-loose monetary policy.
– Inflation in Japan continues to hover above the BoJ’s 2% target, with both CPI and core CPI showing consistent year-over-year gains.
– Nonetheless, the Japanese central bank has not yet significantly shifted course, making USD/JPY movements more strongly influenced by US policy shifts.
Technical Analysis Overview
– The pair opened the week near 146.40 and dipped toward the 144.40 region by midweek, before rebounding slightly to close near the 145.20 level.
– There is strong support near 144.00, historically a region where buying interest has emerged.
– Resistance appears near the key round number of 146.50, which also acted as a
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