The USDJPY pair fell sharply after a disappointing Non-Farm Payrolls (NFP) report. This led the market to expect two rate cuts from the Federal Reserve by the end of the year. The market is now pricing in 59 basis points of easing, up from 35 basis points before the report. Comments from Fed officials like Williams and Daly have increased the chances of a rate cut in September. In response to the soft NFP data and changes in Fed expectations, the yen strengthened, reversing its earlier decline that was influenced by Governor Ueda’s comments. The yen may gain more strength if US data continues to weaken or if Japanese inflation rises, leading to increased expectations for monetary policy easing. Technically, USDJPY saw a sell-off from a crucial resistance level near the 151.00 mark on the daily chart, targeting a major trendline around 144.50.

Technical Analysis

The 4-hour chart indicates that prices are below an upward trendline, with sellers targeting the 145.86 level. Buyers need prices to rise above the trendline to challenge resistance. On the 1-hour chart, there is minor resistance at 148.00. Upcoming US ISM Services PMI and Jobless Claims data could further impact market direction. Following Friday’s jobs report, market sentiment has turned significantly against the dollar. The Non-Farm Payrolls data for August 1st, 2025, showed an increase of only 155,000 jobs, much lower than the expected 190,000. Additionally, annual wage growth has slowed to 3.8%, suggesting that the US economy is slowing down. These figures have caused a big change in interest rate futures, signaling a high chance of two Fed rate cuts by the end of this year. The odds for a rate cut at the September Fed meeting have risen to over 80%, a sharp increase from just a week earlier when the chances were roughly even.

Market Sentiment and Policy Shifts

On the inflation front, the CPI report for July 2025 showed headline inflation dropping to 2.8% year-over-year, giving the Fed more flexibility. With declining inflation and a softening labor market, we anticipate that Fed Chair Powell may use the Jackson Hole Symposium at the end of August to hint at a dovish shift. His speech will be closely watched for confirmation of a September cut. From Japan, recent data adds another layer of complexity. Japan’s national Consumer Price Index for July 2025 rose to 2.7%, slightly above expectations, putting pressure on the Bank of Japan. Although Governor Ueda has maintained a dovish stance, ongoing inflation may compel the BoJ to consider a more hawkish approach later in the year. With strong downward momentum, traders might want to explore strategies that capitalize on a further decline in USD/JPY. Buying put options with strike prices near 145.00 could effectively target the major support trendline around 144.50. For those expecting a short-term bounce before another drop, selling call spreads with a ceiling around the 148.00 resistance level could be a good trade. This strategy would take advantage of the belief that any price rallies will be limited, as sellers are likely to reappear at higher levels. This week’s US ISM Services PMI and Jobless Claims data will be crucial to monitor for potential shifts in this outlook. The rapid change now feels reminiscent of the Fed’s policy pivot in 2019, when a swift change in guidance caused a prolonged period of dollar weakness. We should also recall the Ministry of Finance’s intervention back in 2022 when USD/JPY last traded above 151, indicating a strong political commitment to preventing excessive yen weakness and reinforcing the current resistance level. Create your live VT Markets account and start trading now.

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