The USDJPY exchange rate was back in a familiar range after U.S. jobs weakness halted dollar strength.
USDJPY – Weekly Chart
The USD/JPY was looking to break above a recent range resistance, but Friday’s weaker U.S. jobs number sent the pair back into the range. The 146.61 level is now key for the downside, and 148.49 is the upside obstacle.
Friday’s weaker U.S. payrolls number has continued a theme for the year, where the yen has recovered from its extremely high levels. The days of yen intervention talk have disappeared again as the dollar slumped.
There is some hope for the dollar in the fourth quarter, driven by seasonal patterns. Historical data tends to show yen selling in Q4, against major currencies. The fourth quarter can also see bullish activity for stock indexes. Recent strength in the U.S. market could attract investors and boost investment flows into dollar assets.
A narrowing interest rate differential between the United States and Japan largely drove the 2025 rally in the Japanese yen futures. That saw an unwind of the carry trade in the yen, which started in August last year.
As the Bank of Japan leaned toward a more hawkish policy stance, the Federal Reserve has become more dovish. Friday’s jobs number has traders expecting a 25-50 basis point cut in the U.S., but it’s fair to say that this was priced in months ago.
Economic data is light for the USD/JPY pair this week, but there is a producer price index reading on Wednesday at 8:30 p.m. HKT. It was that figure that showed some inflation in the prices that manufacturers pay for their goods. If we see another reading to the upside, it could put a cloud over the interest rate cuts in the U.S.
Alongside the seasonal risk to the yen, Monday saw the resignation of Japanese Prime Minister Shigeru Ishiba. Investors are now considering the potential for a PM with a looser view of fiscal and monetary policy.
“The probability of an additional rate hike in September was never seen as high to begin with, and September is likely to be a wait-and-see,” said Hirofumi Suzuki, currency strategist at SMBC.
“From October onwards, however, outcomes will in part depend on the next prime minister, so the situation should remain live”.
Some political challengers have been critical of the BOJ’s tightening policy, and such an appointment could reverse the year’s gains for the Japanese yen.
