Fundamental Overview

USD: The US dollar has clawed back most of the losses it suffered following a softer-than-expected Non-Farm Payrolls (NFP) report, as the probability of a September rate hike climbed back to 50%. The sharp swing in market expectations stems from a significant drop in government jobs, which made the overall report appear weaker than it truly was. The unemployment rate told a different story, however, edging lower to 4.1%. Taken as a whole, the labor market remains on a healthier trajectory compared to the past three years.

Attention now turns to the US CPI report, which will be pivotal for the September FOMC decision and Fed Chair Warsh's upcoming speech at the Jackson Hole symposium. Market participants will focus closely on the Core CPI month-over-month figure, which is expected at 0.2%. A hotter-than-anticipated reading would likely spark a dollar rally as traders increase their rate hike bets. Conversely, a soft or in-line print should further diminish the risk of Fed tightening and place additional downward pressure on the greenback.

JPY: On the Japanese yen side, the picture has changed little following the intervention. The most notable development came from US Treasury Secretary Bessent, whose remarks to CNBC hinted at a potentially faster pace of Bank of Japan (BoJ) tightening. Bessent stated that "it will require policy to follow up on the intervention" and added that the "US would not have joined if it was not optimistic about Japan policies." The fact that the US Treasury participated in coordinated currency intervention alongside Japan is itself noteworthy, as US authorities have historically been reluctant to intervene in foreign exchange markets, making the joint action a signal of how closely the two governments are aligned on addressing yen weakness.

Japan's currency diplomat Mimura separately indicated that he shared an understanding with the BoJ following the intervention, which may serve as another signal pointing toward accelerated rate hikes. Additionally, a report from Jiji Press yesterday, citing sources, suggested that the BoJ may consider raising rates at its September meeting. Historically, reports of this nature ahead of BoJ meetings have been followed by the central bank acting accordingly, supporting expectations that the BoJ will hike rates to 1.25% in September. Market pricing remains more conservative, however, assigning just a 58% probability to a rate increase.

The persistent gap between US and Japanese interest rates remains the core structural driver of USD/JPY, and any shift in either leg of that differential — whether through Fed easing or BoJ tightening — has outsized implications for the pair's direction.

Overall, the prevailing trend is unlikely to reverse without either a dovish repricing of Fed interest rate expectations or a faster BoJ tightening pace.

USD/JPY Technical Analysis — Daily Timeframe

On the daily chart, USD/JPY has been gradually recovering ground since the intervention. The first significant upside target is the resistance zone around the 160.50 level. Should price reach that area, sellers are likely to step in with defined risk above the resistance, positioning for a retreat back toward the 155.00 handle. Buyers, meanwhile, will be looking for a breakout to extend bullish positions into new cycle highs.

USD/JPY Technical Analysis — 4-Hour Timeframe

On the 4-hour chart, an upward trendline defines the current bullish momentum. In the event of a pullback toward the trendline, buyers are expected to lean on it with defined risk below, aiming to push prices toward new highs. Sellers, on the other hand, will look for a trendline break to initiate positions targeting a drop to the 155.00 handle.

USD/JPY Technical Analysis — 1-Hour Timeframe

On the 1-hour chart, a minor support zone sits around the 158.50 level. If a pullback materializes, buyers are likely to defend this support with defined risk below the trendline, seeking to drive prices back toward new highs. Sellers will need to wait for a confirmed break below the trendline to build conviction for a move back toward 155.00. The red lines on the chart denote the average daily range for the session.

Upcoming Catalysts

Today brings the US CPI report, which carries particular weight here given its dual relevance: a hot print could reinforce the dollar side of the rate differential, while a soft print could narrow it. Tomorrow will feature US PPI data along with the latest weekly Jobless Claims figures. The week concludes on Friday with US Retail Sales and the University of Michigan Consumer Sentiment report. Traders will also be watching for any BoJ commentary or additional Japanese media reports that could shift September hike expectations.