• US Nonfarm Payrolls beat expectations by a wide margin in May, with 172K jobs added.
• The US Dollar rebounds after the release, helping USD/JPY recover from its intraday lows.
• Warnings from Japanese authorities continue to limit upside potential near the 160.00 threshold.

USD/JPY trades around 160.00 on Friday at the time of writing, virtually unchanged on the day after rebounding from its intraday lows following the release of the US employment report.

The Bureau of Labor Statistics (BLS) reported that US Nonfarm Payrolls (NFP) increased by 172K in May, following an upwardly revised gain of 179K in April. The figure significantly exceeded market expectations of 85K. Meanwhile, the Unemployment Rate remained steady at 4.3%, while annual wage growth slowed to 3.4% from 3.6% previously.

The report also showed upward revisions to previous months’ data. Payroll gains in March and April were revised higher by a combined 93K jobs, highlighting the continued resilience of the US labor market.

The market reaction was immediate. The US Dollar (USD) strengthened against most major currencies after the release as investors strengthened expectations for Federal Reserve (Fed) monetary tightening this year. According to the CME FedWatch tool, investors now see a 41.2% chance of a 25-basis-point interest rate hike in December, while the likelihood of rates remaining unchanged stands at 41.6%.

The Greenback’s recovery helped USD/JPY rebound after earlier weakness during the day. However, the pair’s gains remain limited as the Japanese Yen (JPY) continues to draw support from expectations of further monetary tightening by the Bank of Japan (BoJ). Data released in Japan earlier on Friday showed wage growth accelerating to 3.5% YoY in April, reinforcing expectations of another rate hike at the BoJ’s June 16 meeting.

In addition, Japanese authorities continue to maintain strong verbal pressure on the foreign exchange market. Japanese Finance Minister Satsuki Katayama reiterated on Friday that the government stands ready to take “decisive action” against excessive JPY volatility. Several analysts, including those at DBS and BNY, now view the 160.00 level as a potential trigger point for another round of foreign exchange intervention.

As a result, despite support from stronger-than-expected NFP data and a rebound in the US Dollar, USD/JPY remains in a highly sensitive area where the risk of official Japanese intervention could limit any sustained move above the 160.00 mark.