• The US economy added a smaller 175,000 jobs last month.

• The US unemployment rate increased to 3.9% in April.

• The yen gained 3.5% last week, ending its best week since December 2022.

The USD/JPY forecast shows a temporary pause in a downward trend as the dollar recovered on Monday. Still, a recent decline in US employment has fueled expectations for Fed rate cuts in 2024. Meanwhile, the yen maintains its strength after a suspected intervention by the Bank of Japan last week.

The US economy added 175,000 jobs last month, compared to estimates for 243,000. Meanwhile, the unemployment rate increased to 3.9% when economists had expected it to hold at 3.8%. This was the first downbeat NFP report in a while and came as a relief to Fed policymakers. As a result, the Fed might cut rates at least twice this year.

After the report, markets are pricing in 45 bps of cuts in 2024. However, analysts believe policymakers need more evidence that the downtrend in the labor market will continue. However, if the following employment report is robust, policymakers will remain cautious about rate cuts. Meanwhile, they will cheer any signs of weakness in the labor market as it will mean less inflationary pressure.

Elsewhere, the yen remained strong despite a pullback on Monday. Notably, the currency gained 3.5% last week, ending its best week since December 2022. The gains came after two suspected interventions by Japanese authorities on Monday and Wednesday. This has given them some time to reduce the economic effects of a weak currency.

USD/JPY key events today

There are no critical reports from the US today. Meanwhile, Japan is observing a holiday, which will keep investors on alert for any intervention.

USD/JPY technical forecast: Pullback within the bullish flag

On the technical side, the USD/JPY price has retested the 154.01 critical level after making a new low. The bias is bearish because the price trades well below the 30-SMA, while the RSI sits below 50 in bearish territory. Moreover, the price trades in a flag pattern, respecting its support and resistance.

If the 154.01 key level holds as resistance, the price will bounce lower and likely reach the 151.01 support level. However, if the resistance gives way, it will retest its channel resistance and the 30-SMA before declining.

https://www.forexcrunch.com/blog/2024/05/06/usd-jpy-forecast-fed-rate-cut-bets-surge-after-dismal-nfp/