• Japan’s wage gains have shown sustainable growth prospects.

• US nonfarm payrolls rose by 256,000, beating estimates of 164,000. 

• Traders expect only 27-bps of Fed rate cuts this year.

The USD/JPY outlook shows increasing price pressures in Japan that might convince BoJ policymakers to hike rates soon. As a result, the yen gained despite a strong dollar. The greenback soared on Friday after an upbeat jobs report lowered expectations for Fed rate cuts. 

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The yen strengthened on Monday as market participants increased bets for a near-term Bank of Japan rate hike. Policymakers have been monitoring Japan’s wage gains, showing sustainable growth prospects. At the same time, the weak yen has hiked import costs, increasing inflationary pressure. Consequently, conditions for a rate hike are aligning, supporting the yen. High interest rates in Japan will shrink the gap in rates with the US. 

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Furthermore, top Japanese officials closely monitor the yen, which has significantly weakened in recent weeks. More declines might push officials to act and support the currency. 

On the other hand, the greenback soared on Friday after data revealed an unexpected jump in US jobs in December. Nonfarm payrolls rose by 256,000, beating estimates of 164,000. Additionally, the unemployment rate eased to 4.1%, below forecasts of 4.2%. As a result, traders expect only 27-bps of Fed rate cuts this year. The next major report will show the state of inflation in the US. Another upbeat report could wipe out expectations for rate cuts this year.

USD/JPY key events today

Traders do not expect any key reports from the US or Japan. Therefore, the pair might keep reacting to recent developments. 

USD/JPY technical outlook: Bearish RSI divergence 

On the technical side, the USD/JPY price is dropping after failing to break above the 158.02 resistance level. The price trades below the 30-SMA, showing bears are in the lead. Moreover, the RSI trades below 50, suggesting solid bearish momentum.

Xem thêm : US Dollar holds near multi-year highs to begin 2025

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Bulls have made several attempts to continue the previous uptrend but have failed. They can no longer make solid swings above the 30-SMA. At the same time, the RSI has made a bearish divergence, indicating fading momentum. 

Therefore, there is a high chance bears will trigger a trend reversal. However, the price must break below the 156.03 support level and start making lower highs and lows. If this happens, USD/JPY will drop to retest the 153.02 support level.

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