The foreign exchange market this week is dominated by the growing contrast between the Federal Reserve and the bank of Japan. In the U.S., cracks in the labor market are strengthening expectations that the Fed may pivot toward easing sooner than anticipated. In Japan, however, resilience in corporate surveys and signs of dissent within the BoJ suggest the era of ultra-loose policy may not last forever. This divergence has tilted momentum away from the dollar and placed the yen firmly in the driver’s seat.
The September ADP private payrolls report was a setback for dollar bulls. The data showed a 32,000 decline in jobs, the sharpest contraction since March 2023, while August’s figure was revised down from +54,000 to -3,500. Although officials acknowledged that September’s data was incomplete, making the survey less precise, markets paid closer attention to the trend: U.S. job growth is slowing down.
Treasury yields fell in response, and the dollar index came under pressure as traders increased bets of Fed rate cuts before year-end. For markets, the key takeaway is that employment — long considered the Fed’s final shield against easing — now looks vulnerable. Unless Friday’s Nonfarm Payrolls report delivers a significant upside surprise, the dollar’s defensive position is unlikely to improve.
In Contrast, the Bank of Japan has provided yen buyers with more confidence. The BoJ kept interest rates unchanged as its latest meeting, but two board members dissented — a rare outcome that highlights growing pressure to adjust policy.
At the same time, the quarterly Tankan survey underscored Japan’s resilience. The large manufacturers’ index climbed to 14, while the services index surged to 28, it’s highest in forty years. These readings suggest that Japan’s economy is stable enough to withstand less accommodative policy. For investors, this combination of policy dissent and solid data has strengthened the argument for yen appreciation.
The yen’s strength this week has extended beyond USD/JPY. Since Monday’s open, the pair has dropped about 1.6%. EUR/JPY fell 1.4% posting a bearish engulfing weekly candle, while CHF/JPY retreated almost 2% from multi-year highs. CAD/JPY slid to a 13-week low, and AUD/JPY reversed from gains to losses after heavy midweek selling.
This breadth of yen strength shows that the move is not simply about U.S. dollar — it reflects a structural repricing of Japanese policy expectations.
The H4 chart points to well-defined levels for USD/JPY:
In short, the technical structure aligns with the fundamental backdrop: the burden of proof lies with the bulls, while sellers continue to hold the advantage.
Friday’s Nonfarm Payrolls release will set the tone for the next leg. A soft headline and weak wage growth would likely validate the bearish view, pushing USD/JPY through 146.30. Conversely, a strong upside surprise could trigger a short-covering rally, but gains may be capped around the 148.00 resistance zone given the broader policy divergence.
The key theme remains intact: U.S. labor softness versus Japan’s resilience. Unless the U.S. job market delivers a convincing rebound, USD/JPY is more likely to drift lower than stage a lasting recovery.
Because it raises the likelihood of Fed rate cuts, lowering Treasury yields and diminishing the dollar’s appeal.
Dissent signals internal pressure for policy change, giving markets reason to expect tighter policy and bid up the yen.
It marks a key floor on the H4 chart, a decisive break below would likely trigger further downside momentum.
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This post was last modified on Oct 02, 2025, 10:36 BST 10:36