USD/JPY traded near 153.30 on Thursday, down 0.70% on the day. The pair rose briefly after the US jobs report, but then fell again as the Japanese Yen strengthened.
US Nonfarm Payrolls rose by 130,000 in January versus 70,000 expected, after a downward revision that left December at a 48,000 gain. The unemployment rate eased to 4.3% from 4.4%. The participation rate rose to 62.5%. Average hourly earnings increased 0.4% m/m and held at 3.7% y/y, versus 3.6% expected.
Fed Policy Outlook
The report supports the Fed keeping rates in the 3.50%–3.75% range. CME FedWatch shows markets are almost fully pricing in a pause in March and April.
Markets also focused on the revisions. These included an 898,000 reduction to the March 2025 employment level and a cut to total 2025 job growth to 181,000 from 584,000. These changes weakened support for the US Dollar.
The Yen strengthened after Prime Minister Sanae Takaichi won Sunday’s election. Markets think this result supports pro-growth policies and allows a gradual shift in BoJ policy. Medium-term tightening expectations are also supporting the Yen.
Last week’s headline jobs number now looks misleading. The key takeaway is the large 898,000 downward revision to the 2025 employment level, which suggests a much weaker US economy. This shift may limit how long the Federal Reserve can keep a hawkish tone in the months ahead.
Positioning And Market Implications
This view is reinforced by yesterday morning’s US Consumer Price Index (CPI) report. Core inflation fell to 2.8% year-over-year, below expectations of 3.0%. This supports the idea that the Fed will stay on hold. Fed funds futures now imply a 40% chance of a rate cut by July. With both jobs and inflation showing weaker underlying trends, it is harder to be bullish on the US Dollar.
On the other side, the Japanese Yen is gaining momentum after Prime Minister Takaichi’s clear election win. Comments this week from the new Finance Minister, pointing to a desire to “normalize policy,” are adding to speculation that the Bank of Japan could end negative rates as soon as its April meeting. Short JPY positions are being reduced quickly, similar to the sharp yen rally seen in mid-2025.
With this policy gap in mind, the bias is for further downside in USD/JPY, with a potential move toward the 150.00 psychological level. Buying March and April put options offers a defined-risk way to express this view. One-month implied volatility has risen to 12.5%, suggesting the market is also preparing for a large move, so putting positions on sooner may be preferable.
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