- USD/JPY edges higher as a steady US Dollar keeps the Yen on the defensive.
- US data show cracks in the labor market with slowing hiring, fewer job openings, and rising layoffs.
- Fed’s Williams calls current policy “modestly restrictive,” leaving room for gradual easing if conditions warrant.
The Japanese Yen (JPY) remains on the defensive against the US Dollar (USD) on Thursday, with USD/JPY recovering most of Wednesday’s losses and edging higher. The pair is supported by a firm Greenback, while the Yen stays pressured by the Bank of Japan’s (BoJ) cautious monetary policy stance, elevated government bond yields, and renewed political uncertainty in Tokyo.
At the time of writing, USD/JPY is trading near 148.65 during the American session, mirroring the modest strength in the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies. The DXY is hovering around 98.40 as investors digest the latest US labor releases and services Purchasing Managers Index (PMI) data, keeping the US Dollar broadly supported as focus shifts to Friday’s August Nonfarm Payrolls (NFP) report, the key event risk of the week.
The latest run of US data has pointed to emerging cracks in the labor market. Hiring momentum is cooling, job openings have slipped to their lowest in nearly a year, and layoffs are beginning to edge higher, all suggesting that demand for workers is easing. At the same time, the ISM survey showed employment in the services sector remaining in contraction, reinforcing the picture of a softer jobs backdrop even as new orders held firm.
Together, these signals highlight downside risks into Friday’s NFP release, where investors will judge whether the slowdown is broad enough to push the Federal Reserve (Fed) toward more aggressive easing. With a 25 basis point cut at the September 16-17 meeting already seen as virtually certain, market attention has shifted to whether weaker employment figures could tilt expectations toward a larger move, even as sticky inflation keeps policymakers cautious about moving too quickly.
Comments from New York Fed President John Williams on Thursday reinforced this cautious tone. Williams described current policy as only “modestly restrictive,” noting that gradual rate cuts could be appropriate if inflation continues to cool and unemployment drifts higher, while warning that tariffs remain an upside risk to prices. His remarks echoed the market view that the Fed is prepared to ease, but will move carefully to avoid reigniting inflationary pressure.
Looking ahead, investors will also watch Japan’s July household spending and labor earnings data due Friday for fresh insight into the strength of domestic demand.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
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