Markets on edge ahead of NFP while gauging Japan’s wage revolution

The market mood remains tense but calculated as traders brace for the all-important U.S. nonfarm payrolls (NFP) report, a potential volatility trigger for FX and rates. The latest jobless claims data surprised to the downside, falling 21K to 221K—well below consensus at 233K and still historically low. But before anyone celebrates labor market resilience, cracks are forming beneath the surface.

Job-cut announcements in February more than doubled YoY, reflecting the impact of government payroll reductions and broader corporate belt-tightening. The Trump administration’s aggressive federal workforce overhaul sets the stage for a cooling labour market, potentially a Trojan horse to force the Fed into deeper rate cuts.

The consensus for today’s NFP print sits at +160K jobs, with unemployment steady at 4%, and wage growth holding at 4% YoY. A negative surprise could send the dollar tumbling, especially after this week’s policy-driven repricing across markets.

Meanwhile, tariff delays and exemptions on Canada/Mexico imports (until April 2) are another factor capping dollar strength as markets unwind the worst-case trade war premium.

In Europe, the ECB delivered its widely expected 25bps cut to 2.50%, signalling that policy is now materially less restrictive. However, Lagarde’s language suggests the end of the rate-cut cycle may be closer than expected, but it did little to drive the EURUSD higher as traders braced for reciprocal tariff tantrums.

Over in Japan, something historic is brewing. The Japanese Trade Union Confederation (Rengo) is pushing for a 6.09% wage hike this year—the highest demand since 1993 and above last year’s 5.85% push. This could be the definitive sign that Japan’s deeply entrenched deflationary mindset is breaking, keeping the BoJ locked into its rate normalization path. The 10-year JGB yield surged 9bps to 1.54%—the highest level since 2009, an ostensibly bullish read-through for the yen vs the US dollar.

The FX market has been treading water ahead of NFP, with the dollar showing some sings of life as traders square up positions into the event risk. This looks like the standard pre-event positioning unwinds, but don’t forget—Doge is taking a chainsaw to government payrolls, meaning more labour market pain could show up in the months ahead. And if the Fed takes the bait, deep rate cuts could soon be on the table, setting the stage for an even more significant dollar position reduction.

This week, the easy money has already been pocketed, and now traders are back to playing the interest rate differential game. Cue in the NFP report

For now, all eyes are on NFP—a miss could accelerate the dollar’s decline, while an upside surprise may slow, but not derail, the broader repricing in rates and FX. The market has already moved this week—now it’s time to see if the data justifies the shift or if we’re in for another round of price discovery.