Japanese Yen Forecast: Will USD/JPY Break Lower After Jobs Data?

On Friday, January 9, Japanese household spending surged in November, fueling speculation about a Bank of Japan rate hike, spotlighting USD/JPY.

The household spending figures contrasted sharply with wage growth data for November, which suggested a potential pullback in consumption at the end of the year. The conflicting reports left the USD/JPY pair around the 157 level and, crucially, the Japanese government’s yen intervention zone (157-160).

The sharp rise in household spending had a muted effect on 10-year Japanese Government Bond (JGB) yields, underscoring the significance of the weaker wage data. Nevertheless, the outlook remains bearish for USD/JPY, given the prospects of Fed rate cuts and eventual BoJ rate hikes.

Below, I’ll discuss the macro backdrop, the near-term price catalysts, and technical levels traders should closely watch.

Household Spending and Inflation Implications

Japanese household spending jumped 6.2% month-on-month in November, recovering from October’s 3.5% decline. Year-on-year, household spending increased 2.9% compared with a 3.0% drop in October.

November’s spending data will give the BoJ hawks a firmer footing to push for a higher neutral interest rate and rate hikes. Robust consumer spending would fuel demand-driven inflation, supporting a more restrictive monetary policy stance. Furthermore, private consumption accounts for roughly 55% of Japan’s GDP growth.

Given the Bank of Japan’s focus on the economic momentum and prices, the November household spending figures support a more hawkish BoJ policy stance. This week, BoJ Governor Kazuo Ueda signaled further rate hikes if prices and the economy aligned with the Bank’s projections.

Wage Growth Raises Caution

In contrast, November’s wage growth figures suggested the need for caution against monetary policy tightening in Q1 2026. Average cash earnings rose 0.5% YoY in November, down sharply from October’s 2.5% increase, while overtime pay increased 1.2% YoY (October: 2.1%).

Typically, softer wage growth, coupled with a weak yen, weakens households’ purchasing power, curbing consumption. A pullback in consumer spending would cool demand-driven inflation and signal a loss of economic momentum, supporting a less hawkish BoJ rate path.

The USD/JPY trends reflected the greater influence of the wage growth data on expectations of a BoJ rate hike. The USD/JPY pair was up 0.05% to 156.907 in early trading on Friday, January 9. Despite the mixed numbers for November, economists expect wages to rebound in December, supporting the bearish short- to medium-term outlook for USD/JPY.

East Asia Econ commented on recent Japanese economic data, including November’s wage growth data, stating:

“The BoJ’s quarterly regional Sakura report shows conditions holding up, and the dip in consumer confidence in December isn’t concerning, given the post-March bounce. Wage growth in November was mixed, but can be expected to rebound in December on stronger bonuses.”

US Jobs Report: Key Near-Term Catalyst

Later on Friday, the highly anticipated US jobs report will influence expectations of a March Fed rate cut. Economists expect nonfarm payrolls to increase 60k in December after rising 64k in November, while forecasting unemployment to fall from 4.6% to 4.5% in December. Furthermore, economists forecast average hourly earnings to increase 3.6% YoY in December, up from 3.5% in November.

Weaker-than-expected labor market data would raise bets on a March Fed rate cut. A more dovish Fed rate path would weigh on demand for the US dollar, sending USD/JPY lower.

According to the CME FedWatch Tool, the chances of a March Fed rate cut fell from 43.2% on January 7 to 41.6% on January 8. Stronger-than-expected US Services PMI data tempered expectations of a March cut. The ISM Services PMI increased from 52.6 in November to 54.4 in December, signaling a robust US economy.

Today’s US jobs report will be key for the near-term USD/JPY price outlook. Fading bets on a March Fed rate cut would challenge the bearish short-term outlook and send USD/JPY higher.

However, expectations of BoJ rate hikes, a new Fed Chair potentially favoring lower rates, remain key drivers. These fundamentals support a bearish medium-term outlook for USD/JPY.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should assess the technicals and closely monitor the fundamentals.

Viewing the daily chart, USD/JPY trades above its 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias. While technicals remain bullish, bearish fundamentals have evolved, countering the technicals.

A break below the 50-day EMA and the 155 support level would indicate a bearish near-term trend reversal, bringing the 200-day EMA into play. If breached, 150 would be the next key support level.

Crucially, a sustained drop below the 50-day and 200-day EMAs would reinforce the bearish medium-term price outlook.

Position and Upside Risk

In my view, bets on BoJ rate hikes, potential threats of yen intervention, and expectations of Fed rate cuts support a negative price outlook. However, the BoJ neutral interest rate and upcoming US jobs data will be crucial, given the focus on US-Japan rate differentials.

A higher neutral interest rate (1.5%-2.5%) would indicate multiple BoJ rate hikes and a narrower US-Japan interest rate differential. A narrower-than-expected rate differential would likely trigger a yen carry unwind, pushing USD/JPY toward 140 over the longer term.

However, upside risks to the bearish outlook include:

• Dovish BoJ commentary and a dovish neutral interest rate (1%-1.25%).
• Upbeat US jobs report.
• Hawkish Fed rhetoric.

These scenarios would send USD/JPY higher. However, the threat of yen interventions is likely to cap the upside at the 158 level, based on the latest communication.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Neutral Rate and Fed Path in the Spotlight

In summary, the USD/JPY trends will hinge on the BoJ’s neutral rate and the Fed rate path.

A hawkish neutral rate (1.5%-2.5%) would indicate a hawkish BoJ rate path. Additionally, dovish Fed rhetoric would boost expectations of narrower rate differentials, reaffirming the bearish outlook for USD/JPY.

Notably, a stronger yen could trigger the unwinding of yen carry trades, which would likely push USD/JPY toward 140 over the longer 6-12 month time horizon.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.