USD/JPY declines as Yen strengthens on BoJ hike bets and weak US jobs data
- USD/JPY slips as the US Dollar stays on the back foot after delayed US jobs data.
- BoJ rate-hike expectations underpin the Yen ahead of Friday’s interest rate decision.
- Markets await US CPI data for clues on the Fed’s policy path into 2026.
The Japanese Yen (JPY) strengthens against the US Dollar (USD) on Tuesday as the Greenback remains on the back foot following the release of the delayed October and November Nonfarm Payrolls (NFP) reports.
At the time of writing, USD/JPY is trading around 154.64, down about 0.40% on the day, while expectations of a Bank of Japan (BoJ) rate hike later this week continue to keep the Yen broadly supported.
Data from the US Bureau of Labor Statistics (BLS) showed that the US economy added 64,000 jobs in November, slightly above market expectations for a 50,000 increase. October payrolls fell by 105,000, sharply reversing September’s 108,000 increase, which was also revised down from 119,000.
The Unemployment Rate rose to 4.6% in November, above market expectations of 4.4% and marking its highest level since September 2021.
Average Hourly Earnings rose just 0.1% MoM in November, missing market expectations for a 0.3% increase, while annual wage growth slowed to 3.5% from 3.7%. In October, earnings increased 0.4% on the month, up from 0.2%, while yearly wage growth eased to 3.7% from 3.8%.
Overall, the employment data suggest that the US labour market is continuing to cool. While November’s payroll gain came in slightly better than expected, the broader picture remains soft, with slower job creation, rising unemployment and easing wage growth.
However, the data did little to shift expectations for the January FOMC meeting, where investors largely anticipate the Fed to hold rates steady. Market attention now turns to the November Consumer Price Index (CPI) data due on Thursday for further clues on the Fed’s monetary policy path into 2026, with markets currently pricing in two rate cuts.
In Japan, attention is now firmly on the Bank of Japan’s policy decision due on Friday, where the central bank is widely expected to raise its policy rate to 0.75%, which would mark the highest level in more than three decades. With the move largely priced in, market focus is likely to shift to Governor Kazuo Ueda’s guidance on the timing and extent of further rate hikes. On Wednesday, Japan’s economic calendar features the November trade data, including the Adjusted Merchandise Trade Balance, Exports and Imports.
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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