Japanese Yen surges as weak US jobs data questions Fed rate hike expectations

• USD/JPY falls toward 157.40 after a much weaker-than-expected US employment report.
• US payrolls turn negative in July, while sharp downward revisions to previous months reinforce concerns over a cooling labor market.
• Recent coordinated FX intervention by the US and Japanese authorities remains questioned by markets.

USD/JPY falls toward 157.40 on Friday, down 0.65% on the day at the time of writing, as the US Dollar (USD) comes under heavy selling pressure following a much weaker-than-expected US employment report. The pair is also weighed down by the strength of the Japanese Yen (JPY), as Japanese authorities maintain their commitment to countering excessive weakness in the domestic currency.

Data released by the Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) declined by 23K jobs in July, compared with market expectations for an increase of 80K. Revisions to previous months further darkened the picture, with June payrolls revised down from 57K to 20K and May from 129K to 63K, resulting in a combined downward revision of 103K jobs.

Despite the sharp deterioration in payroll growth, the Unemployment Rate edged down to 4.1% from 4.2%. Meanwhile, the Labor Force Participation Rate slipped to 61.4% from 61.5%, while annual Average Hourly Earnings growth slowed to 3.2% from a revised 3.4%, adding to evidence that the US labor market is gradually cooling.

The US Dollar weakens sharply following the release as investors reduce expectations that the Federal Reserve (Fed) will begin tightening monetary policy in September. According to the CME FedWatch Tool, the chances of a 25-basis-point rate hike at the September meeting fell significantly after the data, with markets now seeing monetary statu quo as the more likely outcome.

On the Japanese side, Japan's Ministry of Finance (MoF) confirmed that the United States (US) and Japan jointly intervened in the foreign exchange market to counter excessive volatility in the Japanese currency. Japanese Finance Minister Satsuki Katayama also said on Monday that Japan "won't hesitate to carry out more forex intervention with the US" if necessary.

Japan intervention doubts meet rising BoJ hawkishness

Analysts at BBH highlight that Japan’s Ministry of Finance has now released details of its FX intervention operations for April through June 2026, but stress that “Japan’s intervention record this year is hardly convincing.” They note that the three interventions over that period triggered “kneejerk JPY rallies but little lasting follow-though,” with USD/JPY ultimately pushing on to “a 40-year high around 164.00 on July 23.” BBH adds that the size of Japan’s most recent FX intervention on July 30 and July 31 will only be known at end-August, but current estimates suggest “Japan used a record of about ¥14 trillion to prop up JPY,” driving USD/JPY down from “an intra-day high of 163.74 on July 30 to reach a low of 155.23 on August 3 (8.5 yen rally).”

Even so, BBH observes that “the market narrative is already slipping back into skepticism over the effectiveness of Japan’s intervention,” a view they argue is misplaced. “We think that complacency is premature for two reasons,” they write. First, BBH points to the “coordinated US-Japan intervention – and officials’ warning that they stand ready to act again,” which in their view “significantly raises the cost of fighting a stronger yen and puts a much firmer ceiling on USD/JPY.” They underscore that, “as of the end of July, Japan had $1.09 trillion in currency reserves (¥173 trillion), ample firepower to back up its intervention threat.” Second, BBH believes “risks are skewed towards further hawkish Bank of Japan (BoJ) rate repricing,” noting that “the policy rate (1.00%) is near the lower end of the bank’s neutral range (1.10%-2.50%) while the economy is operating above potential,” which “leaves plenty of room for the BoJ to quicken the pace of normalization.”

TD Securities echoes the sense that monetary policy could become a more important driver for JPY, remarking that “Governor Ueda sounded the most hawkish that he's been in a long while at the July BoJ press conference.” The bank says, “we will parse through the Summary to judge if the Board is also aligned with such a hawkish stance, and is ready to hike faster than its usual semi-annual pace of hikes over the past two years.” However, TD Securities cautions that “we are skeptical that most members are as hawkish and expect the next hike in December,” suggesting that while the policy backdrop is shifting, the pace of BoJ normalization may still fall short of the most aggressive market expectations.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.39, maintaining a bearish near-term tone as it holds below the 100-period simple moving average (SMA) at 157.73 and the 200-period SMA at 159.60. The pair has retreated sharply from recent highs, and the Relative Strength Index (14) now sits in oversold territory near 24, hinting that while downside pressure is dominant, selling momentum could be stretched in the short term.

On the topside, initial resistance is located at the 100-period SMA at 157.73, followed higher by the horizontal barrier at 158.57 and then the 200-period SMA at 159.60. On the downside, the next significant support comes at the previously plotted horizontal level near 155.23, where buyers could attempt to slow the decline if the current bearish sequence extends.

(The technical analysis of this story was written with the help of an AI tool. Know more.)