The USD/JPY trades with a subtle downside bias on Friday as lingering concerns over intervention measures support the Japanese yen (JPY), even as the US dollar (USD) remains forceful against its main peers following an upside surprise in US non-farm payrolls (NFP) data. Poor liquidity conditions due to the Good Friday holiday are also contributing to subdued and volatile price action.
At the time of writing, the USD/JPY rate is around 159.57, falling slightly after briefly rising to 159.82 in response to US labor market data.
According to data published by the US Bureau of Labor Statistics, in March the American economy created 178,000 jobs. jobs, exceeding expectations of 60,000, while the unemployment rate fell to 4.3% from 4.4%. Data for February was also revised down to show a loss of 133,000. jobs compared to a previously recorded decline of 92,000, highlighting the recent instability in the labor market.
Average hourly wages increased by 0.2% m/m in March, below the forecast of 0.3% and down from 0.4% previously. Year-over-year, average hourly earnings increased 3.5%, missing expectations of 3.7% and slowing from 3.8%.
The stronger-than-expected headline confirmed expectations that the Federal Reserve (Fed) will keep interest rates unchanged for an extended period of time, with markets largely pricing in rate cuts amid oil-induced inflation risks arising from the ongoing US-Israeli war with Iran.
Business activity data painted a softer picture, however, with the S&P Global Composite Purchasing Managers Index (PMI) falling to 50.3 in March from 51.9 in February, the weakest level since September 2023. Meanwhile, the services PMI fell to 49.8, below the flash estimate of 51.1, signaling a decline and the lowest reading in more than three years.
The supple PMI print had little impact on the US dollar. The U.S. Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading near 100.15, up for the second straight day.
Still, USD/JPY is struggling to find support. Traders remain cautious near the 160 level as Japanese authorities have repeatedly signaled their willingness to counter excess volatility, keeping gains confined despite underlying U.S. dollar strength.
Frequently asked questions about non-farm wages
Nonfarm payrolls (NFP) data are part of the U.S. Bureau of Labor Statistics’ monthly employment report. Specifically, the Nonfarm Payrolls component measures the change in the number of people employed in the U.S. over the previous month, excluding the agriculture industry.
Nonfarm payrolls data can influence Federal Reserve decisions, providing a measure of the Fed’s effectiveness in fulfilling its mandate to support full employment and 2% inflation. A relatively high NFP number means more people are employed, earning more and likely spending more. On both sides, a relatively low Nonfarm Payrolls score may mean that people are struggling to find work. The Fed typically raises interest rates to combat high inflation caused by low unemployment and lowers them to encourage a stagnant labor market.
Nonfarm payrolls data generally have a positive correlation with the US dollar. This means that when wage data turns out to be higher than expected, the US dollar tends to rise and vice versa when it is lower. NFPs influence the US dollar due to their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means that the Federal Reserve will be tighter in its monetary policy, supporting the USD.
The number of non-farm payrolls is generally negatively correlated with the gold price. This means that higher than expected wage numbers will have a depressing effect on the gold price and vice versa. A higher NFP has an overall positive impact on the value of the USD and like most major commodities, gold is priced in US dollars. So if the US dollar appreciates, it takes fewer dollars to buy an ounce of gold. Additionally, higher interest rates (usually helped by higher NFPs) also reduce the attractiveness of gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm payrolls are just one element of a larger jobs report and may be overshadowed by other elements. Sometimes, when NFP reports higher-than-expected results but average weekly earnings are lower than expected, the market has ignored the potentially inflationary impact of the headline result and interpreted the decline in earnings as deflationary. The components of participation rate and average weekly working hours can also influence market reaction, but only in occasional cases such as the “Great Resignation” or the global financial crisis.
