USD/JPY traded near 153.30 on Thursday, down 0.70% on the day. It rose briefly after the US jobs report, then fell again as the Japanese Yen strengthened.
US Nonfarm Payrolls rose by 130,000 in January versus 70,000 expected, after a downwardly revised 48,000 increase in December. The unemployment rate eased to 4.3% from 4.4%, participation rose to 62.5%, and average hourly earnings increased 0.4% m/m while holding at 3.7% y/y versus 3.6% expected.
Fed Policy Outlook
The data supports the Fed keeping rates in the 3.50%–3.75% range. CME FedWatch shows markets almost fully pricing a pause in March and April.
Attention also turned to revisions, including an 898,000 reduction in the March 2025 employment level and a cut to total 2025 job growth to 181,000 from 584,000. These revisions reduced support for the US Dollar.
The Yen gained after Prime Minister Sanae Takaichi won Sunday’s election. Markets expect this outcome to help pro-growth measures and allow gradual BoJ policy adjustment, with medium-term tightening speculation supporting the Yen.
The headline jobs number from last week is proving to be misleading. We are now focused on the massive 898,000 downward revision to the 2025 employment level, which paints a much weaker picture of the US economy. This fundamental shift limits the Federal Reserve’s ability to maintain a hawkish stance in the coming months.
Positioning And Market Implications
This view is strengthened by the US Consumer Price Index (CPI) report released yesterday morning, which showed core inflation fell to 2.8% year-over-year, missing expectations of 3.0%. This reinforces our belief that the Fed will remain on hold, with Fed fund futures now implying a 40% chance of a rate cut by July. The weak underlying trend in both jobs and inflation makes it difficult to be bullish on the US Dollar.
On the other side of the trade, the Japanese Yen’s momentum is building after Prime Minister Takaichi’s decisive election win. Comments this week from the new Finance Minister hinting at a desire to “normalize policy” are fueling speculation that the Bank of Japan could abandon its negative interest rate policy as soon as its April meeting. We are seeing a significant unwinding of short JPY positions, a dynamic we last saw during the sharp yen rally in mid-2025.
Given this policy divergence, we should be positioning for a further drop in USD/JPY, targeting a move toward the 150.00 psychological level. Buying March and April put options offers a defined-risk way to capitalize on this expected downside. The rise in one-month implied volatility to 12.5% indicates the broader market is also preparing for a significant move, so establishing these positions promptly is advisable.
