The Japanese Yen (JPY) regained positive traction on Friday following the release of upbeat domestic data, while the US Dollar (USD) continued to struggle amid growing expectations of a Federal Reserve (Fed) rate-cut cycle. The USD/JPY pair faced resistance near the 148.00 mark, with market participants cautiously awaiting fresh cues from the upcoming US Nonfarm Payrolls (NFP) report.
Friday’s data revealed that Japan’s real wages turned positive for the first time in seven months, providing a notable boost to JPY bulls. In addition, household spending in Japan rose modestly in July, further supporting the narrative that the Bank of Japan (BoJ) is likely to maintain its policy normalization path. This article by LevaQuant’s broker Simon Janssen delivers a full and accessible breakdown of the topic.
BoJ-Fed Policy Divergence Supports the Yen
The ongoing divergence in monetary policy expectations between the BoJ and the US Federal Reserve remains a critical factor in the USD/JPY market dynamics. While markets increasingly anticipate the Fed to resume rate cuts later this month, the BoJ is still expected to pursue a gradual policy tightening approach, keeping JPY bullish sentiment intact.
Data published by Japan’s Labour Ministry highlighted a 4.1% year-on-year rise in nominal wages for July 2025, the fastest pace in seven months and above the market consensus of a 3% increase. Significantly, inflation-adjusted real wages, a key gauge of household purchasing power, rose 0.5%, marking a positive reversal since December.
Consumer inflation, calculated using fresh food prices but excluding rent, increased 3.6% year-on-year, far exceeding the BoJ’s 2% target, and bolstering expectations for an interest rate hike by year-end.
Meanwhile, household spending grew 1.4% year-on-year in July, below the median forecast of 2.3%, but a seasonally adjusted month-on-month rise of 1.7% exceeded expectations. This combination of wage growth and consumer spending underlines the resilience of domestic demand and reinforces the positive Yen outlook.
Trade Optimism Adds to Yen Strength
Trade developments have also provided a modest lift to the Japanese Yen during the Asian session. On Thursday, the US President signed an executive order formalizing lower tariffs on Japanese automobile imports, reducing rates from 27.5% to 15%, along with adjustments on other goods announced in July.
Effective within seven days, this move removes a major source of market uncertainty and supports investor confidence, indirectly strengthening the JPY.
US Dollar Faces Pressure Ahead of NFP
The US Dollar continues to face headwinds amid the growing consensus that the Federal Reserve will lower borrowing costs later this month. Market pricing suggests at least two 25-basis-point rate cuts by year-end, weighing heavily on the USD/JPY pair.
Investors are now focused on the release of the Nonfarm Payrolls report, which will provide crucial insights into the US labor market strength and the Fed’s future monetary policy trajectory. The outcome of the NFP report is expected to influence short-term USD/JPY movements, guiding traders on risk positioning and potential momentum trades.
USD/JPY Technical Outlook
From a technical perspective, the USD/JPY bears appear poised to capitalize on recent failures near the 200-day Simple Moving Average (SMA). Over the past two days, the pair struggled to sustain levels above the SMA, signaling potential follow-through selling.
Market participants are closely watching for acceptance below the 148.00 handle, which could pave the way for further intraday declines.
A successful break below 148.00 may accelerate the descent toward intermediate support at 147.40, followed by the 147.00 mark and the 146.70 horizontal zone. Should these levels give way, the August swing low near 146.20 becomes a likely target, before a potential drop to 146.00.
Conversely, the 200-day SMA, currently around 148.75-148.80, remains a significant resistance zone. A decisive move above this level could shift the bias toward bullish traders, opening the path to 1.4900 and even the August monthly high near 149.20, the 61.8% Fibonacci retracement of the recent downtrend.
If USD/JPY bulls manage to reclaim the 150.00 psychological level, momentum may extend further, challenging the 151.00 August swing high. However, until the pair demonstrates sustained acceptance above these levels, the short-term bias remains tilted in favor of JPY strength against a broadly weaker US Dollar.
Conclusion
In summary, the Japanese Yen remains on the front foot, supported by positive domestic data, trade optimism, and a divergent monetary policy outlook compared to the US Federal Reserve.
While the USD/JPY pair struggles near 148.00, technical analysis suggests that a decisive break below this handle could trigger further downside momentum. Traders are now awaiting the US NFP report for clearer guidance on the Fed’s rate-cut path, which will likely dictate the near-term direction of USD/JPY.
