USD/JPY Awaits U.S. Payrolls as Trade Tensions Simmer

The USD/JPY pair remains locked in a tight range as markets brace for key U.S. economic data, with May non-farm payrolls set to drive sentiment. Despite a fleeting short-covering rally in the U.S. dollar last week, broader risk appetite and stabilizing U.S. Treasury yields have kept the pair rangebound.

Ongoing trade uncertainties, particularly around U.S.-Japan relations, continue to cast a shadow, while economic indicators from both nations provide mixed signals. With critical data releases and central bank commentary on the horizon, traders are eyeing potential breakout triggers.

Risk Sentiment Drives USD/JPY Dynamics

Last week, USD/JPY defied bearish technical signals, buoyed by a short-covering surge in the U.S. dollar. The pair’s movements closely mirrored risk proxies, maintaining a five-day correlation of 0.84 with S&P 500 futures and inverse correlations of -0.86 with gold and -0.92 with VIX futures, according to TradingView data.

A decline in long-dated U.S. Treasury yields, driven by strong Japanese bond demand and successful U.S. debt auctions, supported risk appetite. Real-time market data as of May 31, 2025, shows 10-year U.S. Treasury yields steady at 4.15%, down from a high of 4.25% earlier this month, reflecting calmer bond markets.

Trade uncertainties continue to weigh on sentiment. Recent reports indicate ongoing U.S.-Japan trade talks remain unresolved, with potential tariffs on Japanese exports adding volatility.

Despite this, U.S. economic resilience has bolstered USD/JPY stability. Citi’s Economic Surprise Index for the U.S. turned positive in May, signaling data beats, while Japan’s index slipped into negative territory, highlighting weaker activity.

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U.S. Payrolls and Data in Focus

The U.S. economic calendar takes center stage this week, with May non-farm payrolls due Friday. Consensus forecasts predict a slowdown to 130,000 jobs added, with the unemployment rate holding at 4.2%. Markets often react sharply to payrolls, but the jobless rate carries more weight for Federal Reserve policy.

Other releases, including JOLTS job openings, ADP employment, and weekly jobless claims, could spark volatility, especially with Memorial Day distortions potentially skewing claims data. ISM manufacturing and services PMIs will also be scrutinized for early signs of tariff impacts.

In Japan, midweek wages data will reflect spring negotiation outcomes, though significant increases may lag. Household spending remains a key focus for the Bank of Japan (BoJ), which seeks evidence of wage-driven demand to justify rate hikes. Recent Tokyo CPI data for May, rising to 2.2% year-over-year, beat expectations but failed to shift BoJ’s cautious stance amid trade uncertainties.

Did You Know?
The USD/JPY pair, often called the “ninja” in trading circles, is one of the most liquid currency pairs, accounting for nearly 17% of global forex trading volume, according to the Bank for International Settlements.

Central Bank Signals Under Scrutiny

With the Federal Reserve’s June meeting approaching, Fed speakers have a final chance to guide markets before a media blackout begins Thursday. Real-time analysis suggests no major shift from the Fed’s patient stance, with trade and fiscal policy clarity still elusive.

BoJ Governor Ueda and Deputy Governor Uchida are also scheduled to speak, but markets expect little policy guidance given persistent uncertainties. The BoJ’s overnight rate remains unchanged at 0.25%, with no imminent hikes signaled.

USD/JPY Technical Outlook

USD/JPY is poised for range-bound trading, with support near 142 and resistance around 146. The 144 level remains pivotal, having acted as a magnet in recent months.

Technical indicators lean slightly bearish, with the Relative Strength Index (RSI) below 50 and the Moving Average Convergence Divergence (MACD) in negative territory.

The pair trades below its 50-day and 200-day moving averages, reinforcing a mild bearish bias. However, strong U.S. data could push prices toward resistance, while weak prints may test support levels.