• US Initial Jobless Claims jump to 236,000, signalling further weakening in the labor market.
• Expectations of additional Federal Reserve rate cuts weigh on the US Dollar.
• The Japanese Yen remains supported by rising expectations of a BoJ rate hike.

USD/JPY trades sharply lower on Thursday around 155.10 at the time of writing, down 0.50% on the day. The move reflects increasing pressure on the US Dollar (USD) following labor-market data pointing to a gradual slowdown, while the Japanese Yen (JPY) continues to benefit from expectations of monetary tightening in Japan.

According to the latest figures from the US Department of Labor, Initial Jobless Claims rose to 236,000 for the week ending December 6, compared with 192,000 the previous week. The figure came well above market expectations of 220,000. The four-week moving average also climbed to 216,750, confirming a progressive deterioration in labor-market conditions. Meanwhile, Continuing Jobless Claims eased to 1.838 million but remain elevated overall, reinforcing concerns about a deeper economic slowdown.

This data was released just one day after the Federal Reserve (Fed) cut interest rates by 25 basis points, bringing the target range to 3.50%-3.75%. While the move was widely expected, the softer tone of Federal Reserve Chair Jerome Powell and the limited number of hawkish dissents strengthened the view that the Fed is increasingly concerned about slowing economic activity and could cut rates further in 2026. Markets already expect at least two more rate cuts next year, according to the CME FedWatch tool.

The US Dollar is also weighed down by mounting speculation about Powell’s succession, with his term expiring in May. The possible nomination of Kevin Hassett, seen as more dovish, adds further downside pressure to the Greenback.

In contrast, the Japanese Yen retains a supportive backdrop. Investors continue to price the possibility of a Bank of Japan (BoJ) rate hike as early as next week. BoJ Governor Kazuo Ueda recently noted that the conditions needed to justify policy normalization “have been gradually improving,” while the Corporate Goods Price Index remains high by historical standards. Expectations of Japanese monetary tightening, coupled with a broader sense of caution across global markets, support demand for the Japanese Yen.

Market focus now turns to the BoJ policy meeting scheduled for next Friday. In the meantime, the combination of a softer US Dollar and a firm Japanese Yen keeps USD/JPY on the defensive.