USD/JPY holds steady near 148.50, all eyes on US NFP release

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The USD/JPY pair flat lines near 148.50 during the early Asian session on Friday. Traders prefer to wait on the sidelines ahead of the crucial US economic data. The highly anticipated Nonfarm Payrolls (NFP) for August will take center stage later on Friday.

USD/JPY trades flat around 148.50 in Friday’s early Asian session.
ADP and Initial Jobless Claims data indicated a weakening labor market.
The US August NFP report will be closely watched later on Friday.

Data released on Thursday showed that the US Initial Jobless Claims increased more than expected last week, consistent with softening labor market conditions. Additionally, the ADP National Employment Report revealed that US private payrolls increased less than expected in August.

These job reports suggested labor market weakness and reinforced expectations that the Federal Reserve (Fed) will cut rates this month, which could weigh on the Greenback. Markets are currently pricing in a nearly 100% chance of the Fed cutting interest rates later this month, up from 87% a week ago, according to the CME FedWatch tool.

Traders will closely watch the US August employment data on Friday. The US economy is expected to add 75,000 jobs in August, little changed from July's 73,000, while the Unemployment Rate is projected to tick up to 4.3% in August, from 4.2% a month earlier.

The uncertainty surrounding the likely timing and pace of Bank of Japan (BoJ) rate hikes amid tariff-related uncertainties could drag the Japanese Yen (JPY) lower and act as a tailwind for the pair. BoJ Deputy Governor Ryozo Himino said on Tuesday that global economic uncertainty remains high, suggesting that the central bank is in no rush to push up still-low borrowing costs. However, BoJ Governor Kazuo Ueda on Wednesday showed readiness to continue raising interest rates if the economy and prices move in line with the BoJ's projections.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.