Japanese Yen gives back post-NFP gains despite US Dollar weakness

• USD/JPY rebounds toward 157.65 after briefly falling below 157.00 following the US employment data.
• The Japanese Yen weakens despite hotter-than-expected Tokyo inflation and hawkish signals from the Bank of Japan.
• Weak US job creation weighs on the US Dollar and reduces expectations of an interest rate hike.

USD/JPY trades around 157.65 on Friday at the time of writing, down 0.28% on the day. The pair briefly dropped to 156.95 following the release of the United States (US) employment report before erasing the entire move and returning to pre-release levels. The rebound is mainly driven by renewed weakness in the Japanese Yen (JPY), while the US Dollar Index (DXY) remains close to its daily lows.

The recovery extends the dip-buying pattern seen around the 157.00-156.50 area since mid-September. USD/JPY's resilience is particularly notable as Friday's US economic data provides little support to the Greenback.

The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by only 29K in September, well below market expectations of 90K. Figures for previous months are also revised lower. August's increase is downgraded to 133K from the initially reported 162K, while July now shows a decline of 10K jobs compared with a previously estimated gain of 21K.

Other components of the report reinforce signs of a cooling US labor market. The Unemployment Rate rose to 4.2%, while the Labor Force Participation Rate increased to 61.8% from 61.6%. Average Hourly Earnings rose 3% YoY, below expectations of 3.2%, also easing concerns about wage-driven inflationary pressures.

The US Dollar Index, which measures the Greenback against a basket of six major currencies, fell 0.23% after the data and remains close to its daily lows. The fact that USD/JPY simultaneously manages to erase its post-NFP decline suggests that the pair's rebound is driven more by Japanese Yen selling than by renewed demand for the US Dollar.

The employment figures also trigger an adjustment in expectations surrounding the Federal Reserve's (Fed) next monetary policy decision. According to the CME FedWatch tool, markets now assign around a 18% chance to an interest rate hike in October, down from roughly 24% before the NFP release and 64% a week earlier.

The shift comes after several weaker US economic releases. Thursday's softer-than-expected Personal Consumption Expenditures (PCE) inflation data had already reduced expectations that the Fed would tighten monetary policy again in October. Friday's employment report adds to signs that the US economy may be losing momentum, although markets continue to assign around a 69% chance to a rate hike in December.

On the Japanese side, Friday's fundamentals nevertheless provide several arguments in favor of the Yen. The Statistics Bureau of Japan reported that the Tokyo Consumer Price Index (CPI) excluding Fresh Food accelerated to 2.7% YoY in September from 1.8% in August, above the 2.4% expected. Inflation excluding Food and Energy also accelerated to 3% from 2% previously.

The figures strengthen the case for further monetary tightening by the Bank of Japan (BoJ). The Summary of Opinions (SoP) from the September meeting, released on Thursday, also showed that several policymakers support additional interest rate hikes. One member notably argued that it is appropriate to continue raising rates in line with developments in the economy, prices and financial conditions.

The report also showed, however, that Cabinet Office representatives are urging the central bank to carefully assess the cumulative impact of previous interest rate increases. Despite accelerating Tokyo inflation and hawkish signals from some BoJ policymakers, the Japanese Yen therefore fails to hold onto its gains against the US Dollar on Friday.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.49, pressing lower beneath the 100-period simple moving average (SMA) at 157.53 and the 200-period SMA at 157.71, which together cap the topside and reinforce a bearish near-term bias. The pair has slipped back from recent highs, and the Relative Strength Index (14) near 42 suggests waning bullish momentum, keeping the risk tilted toward further downside while price stays under these moving averages.

On the downside, immediate support emerges at 157.00, ahead of a lower floor at 156.50, while a deeper slide could target the 155.50 area. On the topside, initial resistance is seen at the 100-period SMA at 157.53, followed by the 200-period SMA at 157.71 and a nearby horizontal barrier at 157.85; above there, the next resistance levels stand at 158.45 and 159.00.

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