• USD/JPY snaps a two-day losing streak as upbeat US Nonfarm Payrolls lift the Greenback.
• Strong US labour market data reinforces expectations of another Fed rate hike in December.
• Falling JGB yields weigh on the Yen, offsetting support from safe-haven demand.

USD/JPY rebounds on Friday, snapping a two-day losing streak as stronger-than-expected US jobs data lifts the US Dollar (USD) and brings its yield advantage over the Japanese Yen (JPY) back into focus. At the time of writing, USD/JPY trades around 158.30 after hitting an intraday low of 157.26.

October’s US Nonfarm Payrolls report shows employers added 165K jobs, well above the 65K forecast. Upward revisions to September’s hiring, a drop in unemployment to 4.1% and stronger-than-expected wage growth add to signs that the labour market remains firm.

The report leaves the Federal Reserve (Fed) with little urgency to step away from its inflation fight, keeping a December rate hike firmly in play. St. Louis Fed President Alberto Musalem said on Friday inflation must return to 2% “on a timely basis,” adding that “excess inflation today is coming from energy shocks and the AI buildout.”

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 102.15, recovering from the five-week low near 101.20 reached earlier this week. US Treasury yields also rebound, with the benchmark 10-year yield rising 4 basis points (bps) to 4.88%.

However, softer US consumer inflation expectations limit further gains in the Dollar. Preliminary University of Michigan data show one-year inflation expectations fell to 4.3% in November from 4.7%, while the five-year measure eased to 3.4% from 3.5%.

Meanwhile, the Japanese Yen initially benefited from safe-haven demand amid an AI-led equity sell-off. However, investors also bought Japanese Government Bonds (JGBs), pushing domestic yields lower and offsetting some of the support from risk aversion.

Japan’s benchmark 10-year yield trades around 2.63%, near a four-month low and down more than 4% on the day. This leaves the gap with its US counterpart at around 225 bps. Against this backdrop, the Bank of Japan’s (BoJ) hawkish outlook offers only limited support to the Yen.

Nevertheless, the risk of Japanese intervention keeps traders cautious about taking aggressive bullish positions in USD/JPY. The pair has remained rangebound since late September after recovering from an earlier intervention-driven slide that briefly pushed it below 154.00.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.