Fundamental Overview

US Dollar

The US dollar weakened broadly on Friday after a softer-than-expected Non-Farm Payrolls (NFP) report, which showed negative headline payroll growth and average hourly earnings falling well short of forecasts. The report stood in contrast to a string of robust labour data in prior months that had reinforced the case for the Fed to keep policy restrictive, making the downside surprise particularly disruptive to positioning.

The data prompted a dovish repricing of interest rate expectations. The probability of a September rate hike dropped to 38%, down from 54% prior to the release. Market pricing has since partially normalised, with the likelihood of a September hike recovering to 48%. This whipsaw in expectations stemmed from a significant loss of government jobs, which made the overall report appear weaker than underlying conditions suggested. The unemployment rate told a different story, declining further to 4.1%. Overall, the labour market remains on a healthier trajectory compared to the past three years.

The next major data event is the US CPI report on Wednesday, which will be critical for both the September FOMC decision and the upcoming Jackson Hole Symposium, an annual gathering where Fed Chairs have previously used keynote remarks to signal policy shifts. A hotter-than-expected CPI print would likely trigger a US dollar rally as traders increase rate hike bets. Conversely, a soft report should further reduce the risk of Fed tightening and place additional pressure on the greenback.

Japanese Yen

On the JPY side, little has changed following recent currency intervention. The yen's persistent weakness has been driven in large part by the wide interest rate differential between the US and Japan, as the Bank of Japan has maintained its ultra-loose monetary policy stance far longer than peer central banks. The most notable development came from US Treasury Secretary Bessent's remarks to CNBC, which potentially hinted at a faster Bank of Japan (BoJ) tightening pace.

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 US authorities participated in coordinated intervention is itself notable, as Washington has historically been reluctant to endorse currency market action. Japan's currency diplomat Mimura also noted that he shared an understanding with the BoJ following the intervention, which may serve as another signal toward faster rate hikes.

Without a fundamental shift, interventions are likely to remain clearing events that allow position rebuilding at more favourable levels, a pattern consistent with Japan's previous intervention episodes in 2022 and 2024 that produced only temporary yen strength. The prevailing trend is unlikely to reverse without either a dovish repricing of Fed rate expectations or an accelerated BoJ tightening pace.

USD/JPY Technical Analysis – Daily Timeframe

On the daily chart, USD/JPY is gradually recovering ground after the intervention. The first major target is the resistance zone around the 160.50 level, an area that has repeatedly capped rallies and sits near multi-decade highs for the pair. If price reaches that zone, sellers can be expected to step in with defined risk above the resistance, positioning for a drop back toward the 155.00 handle. Buyers, meanwhile, will look for a breakout to extend bullish bets into new cycle highs.

USD/JPY Technical Analysis – 4-Hour Timeframe

On the 4-hour chart, an upward trendline is defining the current bullish momentum. Should a pullback into the trendline occur, buyers are expected to lean on it with defined risk below, aiming to push toward new highs. Sellers will look for a trendline break to pile in for a decline toward the 155.00 handle.

USD/JPY Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, price is breaking above the minor 158.50 resistance. Buyers are expected to increase bullish positions around these levels with defined risk below the resistance, targeting a move toward 160.50. Sellers will want to see price fall back below the resistance to aim for a pullback into the trendline. The red lines on the chart define the average daily range.

Upcoming Catalysts

• Wednesday: US CPI report
• Thursday: US PPI data and the latest US Jobless Claims figures
• Friday: US Retail Sales and the University of Michigan Consumer Sentiment report