USD/JPY Forecast: Dollar Regains Its Footing After Post-Jobs Report Slump
Original article by Kenny Fisher, repurposed and expanded.
The US dollar has started to recover against the Japanese yen following a significant downturn that was triggered by a disappointing Nonfarm Payrolls (NFP) report released late last week. While the employment data suggested a slowing labor market, recent developments in the bond market and shifting expectations about Federal Reserve policy are underpinning the USD/JPY pair and providing short-term support for the greenback.
As of Monday morning’s trading session, USD/JPY has rebounded modestly and is now consolidating near the 143.50 level after falling over 100 pips on Friday in reaction to the softer-than-anticipated jobs report. The pair’s latest movements highlight the interplay between US economic data, central bank policy expectations, and market sentiment.
Jobs Report Surprises Markets with Weak Print
On Friday, the US Bureau of Labor Statistics released the July Nonfarm Payrolls report, which came in weaker than economists had forecasted. The US economy added just 185,000 jobs compared to the market’s consensus estimate of 225,000.
Key data points from the July jobs report:
– Nonfarm Payrolls increased by 185,000 (expected: 225,000)
– Unemployment rate ticked up to 3.6% (previous: 3.5%)
– Average hourly earnings rose 0.3% (year over year: 4.2%)
– Labor force participation rate remained unchanged at 62.6%
The sharp reaction in USD/JPY following the release was driven by market concerns that weaker job growth will cause the Federal Reserve to halt its rate hikes sooner than previously expected. Although wages continue to rise at a modest pace, the broader labor market narrative is starting to show signs of cooling.
Yields Retreat, Greenback Slips
U.S. Treasury yields dropped in response to the jobs report, with the benchmark 10-year yield slipping from 4.20% to 4.10% on Friday, dragging the dollar down alongside it. Lower yields reduce the appeal of dollar-denominated assets, weakening demand for the greenback in forex markets.
The Japanese yen, a safe-haven currency, gained some strength on the back of falling U.S. yields. Historically, the yen tends to appreciate when global investors become more risk-averse or when U.S. data disappoints.
However, the dollar is showing stability coming into the new week as traders reevaluate the overall health of the U.S. economy and focus shifts toward inflation data and the upcoming Federal Reserve policy outlook.
Fed Policy in Focus: Rate Path Uncertain
While the softer jobs data has calmed some expectations of further aggressive rate hikes from the Fed, it hasn’t ruled them out entirely. Policymakers remain cautious, particularly ahead of key inflation releases such as the Consumer Price Index (CPI) and Producer Price Index (PPI), which are due later this month.
What could influence the Fed’s next move?
– Ongoing inflation pressures: If CPI and PPI rise again or remain above the Fed’s 2% target, a rate hike in September could still be on the table.
– Labor market resilience: A single soft jobs report may not be enough to shift policy unless it’s consistently weaker moving forward.
– Wage growth: Average hourly earnings continue to rise, which could keep inflation sticky despite lower job creation.
Fed Chairman Jerome Powell has kept messaging balanced, maintaining a data-dependent stance. The futures markets are now pricing in a lower probability of another rate hike this year, which has constrained USD strength in recent sessions.
Technicals Signal Consolidation in USD/JPY
The USD/JPY pair experienced a sharp decline on Friday but appears to have found near-term support at 142.00. Technical indicators suggest that the pair may consolidate in the coming sessions as markets await more clarity on inflation and monetary policy.
Key technical
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