Japanese Yen retreats from weekly high as USD steadies ahead of US NFP report
- USD/JPY attracts some buyers during the Asian session, though the upside seems limited.
- The recent slump in US bond yields and Iran diplomacy hopes act as a headwind for the USD.
- A hawkish BoJ might support the JPY and cap spot prices ahead of the crucial US NFP report.
The USD/JPY pair stages a modest recovery from the 157.25 area, or fresh weekly touched during the Asian session on Friday, and climbs to the 158.00 neighborhood in the last hour. Spot prices now seem to have snapped a two-day losing streak, though the upside seems capped as traders might opt to wait for the release of the crucial US monthly employment details before placing fresh directional bets.
The popularly known US Nonfarm Payrolls (NFP) report will play a key role in influencing market expectations about the US Federal Reserve's (Fed) policy path, which in turn will drive US Dollar (USD) demand. Heading into the key data risk, some repositioning trade turns out to be a key factor behind the USD/JPY pair's intraday rebound, though the fundamental backdrop warrants some caution before placing aggressive bullish bets amid subdued US Dollar (USD) price action.
A decisive Democratic sweep in the US midterm elections lowered expectations that US President Donald Trump will resume military strikes against ? Iran, triggering a steep decline in crude oil prices and easing inflationary concerns. This forced traders to trim their bets for a Fed hike in December. Adding to this, a bruising rout on Wall Street forced investors to take refuge in safe-haven assets and dragged US bond yields to a near two-month low, capping the upside for the USD.
The Japanese Yen (JPY), on the other hand, might continue to draw support from hawkish Bank of Japan (BoJ) expectations. In fact, minutes of the September BoJ meeting showed on Thursday that policymakers concurred it was appropriate to keep increasing the policy interest rate and modify the level of monetary easing. This reaffirms market bets for an interest rate hike in December, which favors JPY bulls and might keep a lid on any meaningful recovery for the USD/JPY pair.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair maintains a mildly bearish near-term tone beneath the 200-day Simple Moving Average (SMA) at 158.66, suggesting that rallies are likely to face selling interest while the broader structure remains below this key average. Bulls would need to reclaim the said barrier to ease downside pressure and open the door for a more constructive bias.
On the downside, the daily swing low, around 157.25, could lend some support ahead of the 157.00 mark and the lower boundary of a short-term trading range, around the 156.60-156.50 region. A convincing break below will be seen as a fresh trigger for bearish traders and turn the USD/JPY pair vulnerable to decline further.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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