USD/JPY saw a slight rise, trading around 156.50 during the European session on Tuesday. This increase comes with a minor recovery in the US Dollar as investors prepare for the US Nonfarm Payrolls (NFP) data for December, which will be released on Friday. The US Dollar Index (DXY), which measures the Dollar against six major currencies, edged up to about 98.45. Earlier, the Dollar had weakened due to a positive market sentiment as investors reacted to US military actions in Venezuela.

US Nonfarm Payrolls and Labor Market Concerns

Attention is now on the US NFP data, especially as Federal Reserve officials are more worried about labor market risks than inflation. Investors will also review the ADP Employment Change and ISM Services PMI data from December, along with November’s JOLTS Job Openings. Meanwhile, the Japanese Yen remains weak, even though Bank of Japan (BoJ) Governor Kazuo Ueda hinted at possible interest rate hikes soon. He indicated a need to adjust monetary policy to support steady growth and stable inflation. The BoJ began its loose monetary policy in 2013 to boost the economy and encourage inflation. Changes in 2024 marked the BoJ’s first interest rate hikes, moving away from a policy that had weakened the Yen amid global monetary policy shifts. Looking back to late 2025, attention was on the US Nonfarm Payrolls report while USD/JPY was near 156.50. This focus was validated when the December jobs report showed a disappointing gain of only 120,000 jobs, while forecasts predicted 160,000, confirming the Federal Reserve’s worries about a slowing labor market.

Market Reaction to Labor Data

This weak labor data caused the US Dollar Index to drop from 98.45 to its current range around 97.50, driving the USD/JPY pair lower to about 153.00. This indicates a clear downturn for the dollar after the crucial data release. At the same time, the Bank of Japan’s position from late last year appears stronger. Governor Ueda’s hints at further interest rate hikes are supported by new inflation data, with Japan’s core CPI remaining above the 2% target at 2.5%. This difference in policies — a possibly dovish Fed versus a hawkish BoJ — suggests that the Japanese Yen may continue to strengthen. In this context, traders might consider preparing for further declines in USD/JPY. Buying put options with strike prices below 152.00 could be a good way to profit from a further drop, targeting the significant psychological level of 150.00 in the coming weeks. This strategy limits risk to the premium paid for the options. However, it’s essential to monitor upcoming US inflation data. A surprisingly strong Consumer Price Index (CPI) report could quickly disrupt the expectation of an imminent Fed rate cut, causing a rebound in the US dollar. We saw similar volatility in early 2024 when strong inflation figures repeatedly delayed market hopes for policy relaxation. Create your live VT Markets account and start trading now.

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