The yen surged to a nine-week high as market participants ramped up bets on further interest rate hikes in Japan this year. Meanwhile, the U.S. dollar and other major currencies remained steady ahead of the release of U.S. monthly payroll figures later in the day.
After a week marked by volatility and market-moving headlines concerning U.S. tariff threats, traders shifted their focus to the upcoming U.S. jobs data while keeping a close watch on geopolitical developments and President Donald Trump’s broader policy actions.
The U.S. labor market has demonstrated resilience. A Reuters poll of economists anticipates that the unemployment rate in January remained unchanged at 4.1%, with an estimated addition of 170,000 jobs. However, analysts caution that January’s employment data could be challenging to interpret.
Commerzbank analysts highlighted that “significant revisions” to population growth by the U.S. Census Bureau in December could “complicate the market’s reactions.” They noted in a research report that “large revisions in the monthly employment data” are possible.
On Thursday, Dallas Fed Bank President Lorie Logan indicated her willingness to keep interest rates on hold for “quite some time” even if inflation moves closer to the Fed’s 2% target, provided that the labor market remains stable.
The dollar index, which gauges the U.S. currency against the yen, sterling, and other major counterparts, was unchanged at 107.71 after reaching 109.88 earlier this week on U.S. tariff concerns.
The yen continued its upward momentum, driven by expectations of sustained rate hikes by the Bank of Japan. The dollar held steady against the yen at 151.555 after briefly dipping below 151 for the first time since December 10 in early Asian trade. With strong rate-hike-driven momentum, bolstered by wage data earlier this week, the yen is set for its best week against the dollar since late November.
Adding to the rate hike expectations, Bank of Japan board member Naoki Tamura, one of the central bank’s most hawkish policymakers, stated on Thursday that interest rates must rise to at least 1% in the latter half of fiscal 2025.
Barclays strategists Shinichiro Kadota and Lhamsuren Sharavdemberel foresee further downside potential for the dollar-yen pair in the near term, with attention centered on Japan’s annual wage negotiations.
“We expect Japan’s annual spring wage negotiations to produce another solid 5% hike this year while inflation remains above the 2% target, which should keep the BOJ on the hawkish side,” they wrote in a note.
Elsewhere, early moves by the Trump administration have kept investors on edge. Trump suspended planned tariff measures against Mexico and Canada this week but imposed an additional 10% levy on Chinese imports.
The offshore yuan remained around 7.2902 against the dollar, staying within its recent range, though downside risks persist.
On the U.S. monetary policy front, Federal Reserve officials are evaluating Trump’s policies as they determine the future course of interest rates.
Market expectations currently indicate a 43% probability of a quarter-point rate cut by the Fed in July, according to the CME FedWatch tool. Investors are also factoring in the likelihood of two rate reductions in 2025, with around 44 basis points of cuts priced in.
The euro was little changed at $1.0385, while sterling remained flat at $1.2438.
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