Japanese Yen loses ground as upbeat US NFP reinforces hawkish Fed outlook

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.