The USDJPY pair hovers near a critical level before the US NFP data release. Recent strong US data and a hawkish tone from Fed Chair Powell have driven USD gains. The US ADP and Q2 GDP exceeded expectations, and Powell did not indicate a rate cut in September, suggesting a shift in interest rate expectations.
Market expectations for easing have adjusted, now seeing 35 bps by year-end compared to a previous 47 bps. The US NFP report is in focus, with Powell emphasising the importance of the unemployment rate. On the Japanese side, the BoJ maintained interest rates, revising inflation forecasts higher, which resulted in little yen movement.
Technical Analysis of Usdjpy
Further yen appreciation may require weak US data or higher Japanese inflation. On the technical side, USDJPY breached the 148.30 resistance level, aiming for the 151.00 mark. A potential pullback to 148.30 could occur, with the possibility of further gains towards 155.00.
In shorter timeframes, an upward trendline sustains bullish momentum, with purchasers leaning on it to target new highs. Sellers seek a break lower towards the 142.35 level. Key upcoming events include the US NFP report and ISM Manufacturing PMI.
We are seeing the long-standing policy gap between the US and Japan begin to narrow. The Fed has delivered two rate cuts since late 2024 in response to a softening labor market, with the unemployment rate now standing at 4.2% as of the June 2025 report. However, with core inflation proving stubborn at 2.8%, further easing from the Fed is now in question.
Shifts in US and Japan Monetary Policies
On the Japanese side, the landscape has shifted from what we saw back in 2024. The Bank of Japan has moved its policy rate to 0.25% to combat persistent inflation, which the latest Tokyo CPI confirmed is running at 2.6%. This is a stark contrast to the past, where Governor Ueda seemed unconcerned with yen weakness.
For derivative traders, this places the pair at a pivotal point, currently trading around 152.50. The 151.20 area, which was a major resistance point we watched through late 2023 and 2024, is now the critical support level for the coming weeks. Options traders could consider strategies that benefit from a potential drop, such as buying puts with a strike below 151.00, to position for a sharper dovish turn from the Fed.
All eyes are now on today’s US Non-Farm Payrolls report for July, which will be released shortly. Another weak jobs number could reignite bets for a September Fed cut, putting significant downward pressure on the pair and testing that 151.20 support. Conversely, a strong report would reinforce the Fed’s patient stance and could see us challenge the 155.00 handle again.
