Japanese yen outlook: USD/JPY momentum softens ahead of payrolls and Nvidia test

• USD/JPY correlations with U.S. rates have broken down
• Payrolls and wages dominate focus late week
• Fed speakers may shape pricing after the data
• Nvidia earnings key for carry sentiment
• Momentum fading even as price signals firm

Summary

USD/JPY has broken away from its usual rate and risk drivers, but with official U.S. data set to resume this week the correlation with yields may start to rebuild. Payrolls and wages will dominate focus, especially with markets split on whether the Fed cuts again in December. Nvidia’s earnings may impact carry trade flows, while upcoming bond auctions add event risk. Technically, the pair is signalling upside potential but with fading momentum.

USD/JPY Drivers Disintegrate

The tight relationship between U.S. interest rates and USD/JPY has weakened noticeably recently, as seen in the rolling 10-day correlation coefficient scores in the right-hand pane below. Be it Fed rate cut pricing out to the end of 2026 (grey) or U.S. two and ten-year yields (black and blue, respectively), there’s been no meaningful relationship with shifts in USD/JPY, hinting something other than the U.S. rates outlook is influencing the pair. It’s certainly not risk appetite, with no strong relationship with the VIX (red) or Nasdaq futures (purple) shown further down, nor movements in Japanese yields across multiple tenors not shown.

Source: TradingView

USD/JPY has really been doing its own thing, possibly reflecting that we’ve not received any meaningful new information on the U.S. economy for weeks outside private surveys. However, with the U.S. government open again and data beginning to flow, I suspect the relationship between the rates outlook and USD/JPY may start to strengthen once again.

Data Drought Over

The key U.S. economic data to watch this week is found in the snippet below from the Bureau of Labor Statistics website confirming September nonfarm payrolls will be released on Thursday morning in the States, with wages data following a day later.

Source: BLS

While the data is dated and does not provide a complete picture of broader labour market conditions given separate unemployment, underemployment and participation figures are produced in the household survey and won’t be released, these data points, especially payrolls, will dominate market focus in the latter part of the week, along with Nvidia’s earnings report due after market close on Wednesday.

Before the government shutdown, the trend in payrolls growth was an obvious weakening one, contributing to the Fed cutting rates twice in September and October. Should we see a similar outcome or weaker in this data, it may see markets add to pricing for rate cuts over the next year.

Recently, market pricing has unwound a touch, coinciding with what has come across as a coordinated attempt from less dovish FOMC members to push back against expectations that the Fed will deliver a third consecutive cut in December. As things stand, pricing for a cut at the meeting is deemed a coin toss, with only three cuts now priced by the end of next year. Not that long ago, there were more than four 25-point reductions expected over that period.

Source: TradingView

Given how successful Fed officials have been in unwinding dovish pricing lately, extra attention should be paid to comments from speakers after the release of the September payrolls report.

So fluid is the situation with the U.S. data right now, the key releases are not even on the calendar below, which also contains the key Japanese releases to watch. I’d encourage anyone trading USD/JPY to take an occasional glance at the announcement pages on the BLS and BEA websites for updates on when incoming data will be released. The links are found here and here.

Source: TradingView (U.S. eastern time shown)

Of the lengthy calendar, events that carry the potential to generate volatility in USD/JPY include a pair of 20-year bond auctions from both Japan and the U.S., Japan’s Q3 GDP report due early Monday in Tokyo, the weekly ADP employment report and a speech from BOJ board member Junko Koeda. The remainder comes across as more likely to generate noise than signal.

On Nvidia’s earnings report mentioned briefly above, it has to be a consideration for USD/JPY traders given how important the performance of U.S. stocks and volatility is for carry trades. I’m not an equity analyst but you’d struggle to find a time when the company has failed to beat on topline revenues, especially during the A.I. boom. Nor does its CEO Jensen Huang tend to shy away from delivering bullish forecasts. So, in a basic sense, that’s what will be expected. Perhaps the biggest risk to carry trades will be if we get both those things and the stock still can’t rally, providing what will be an obvious sign the A.I. hype has reached exhaustion point.

USD/JPY Providing Mixed Signals

Source: TradingView

Entering the new week, USD/JPY delivered a bullish signal with Friday’s pin candle after reversing strongly from minor support at 153.60, hinting directional risks may be higher near term. However, while both remain firmly in bullish territory, the momentum picture from RSI (14) and MACD is one of waning strength, providing enough to treat the price signal with some caution. The former has seen bearish divergence from price, while the latter has crossed the signal line from above and is rolling over, suggesting that if we do see some upside early in the week, it may be more of a slog than a gallop.

155.05 is the first topside level of note, coinciding with the high set on November 12. If that were to be broken, 156.50 resistance would be next on the radar. Beneath 153.60, 153.00 initially capped the pair in October before flipping to support in early November, making it relevant on the downside. 152.00 down to 151.50 also brought out dip-buyers when last tested, making it and 151.00 support other levels to watch. If we do see a downside break and close beneath Friday’s lows, the rising wedge pattern USD/JPY has been sitting in suggests we could see a broader unwind beneath 150 should convention prove accurate.