USD/JPY steadies above 148.00 with NFP in the spotlight

The Japanese Yen (JPY) remains on the defensive against the US Dollar (USD) on Thursday, with USD/JPY recovering most of Wednesday’s losses and edging higher. The pair is supported by a firm Greenback, while the Yen stays pressured by the Bank of Japan’s (BoJ) cautious monetary policy stance, elevated government bond yields, and renewed political uncertainty in Tokyo.

At the time of writing, USD/JPY is trading near 148.65 during the American session, mirroring the modest strength in the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies. The DXY is hovering around 98.40 as investors digest the latest US labor releases and services Purchasing Managers Index (PMI) data, keeping the US Dollar broadly supported as focus shifts to Friday’s August Nonfarm Payrolls (NFP) report, the key event risk of the week.

The latest run of US data has pointed to emerging cracks in the labor market. Hiring momentum is cooling, job openings have slipped to their lowest in nearly a year, and layoffs are beginning to edge higher, all suggesting that demand for workers is easing. At the same time, the ISM survey showed employment in the services sector remaining in contraction, reinforcing the picture of a softer jobs backdrop even as new orders held firm.

Together, these signals highlight downside risks into Friday’s NFP release, where investors will judge whether the slowdown is broad enough to push the Federal Reserve (Fed) toward more aggressive easing. With a 25 basis point cut at the September 16-17 meeting already seen as virtually certain, market attention has shifted to whether weaker employment figures could tilt expectations toward a larger move, even as sticky inflation keeps policymakers cautious about moving too quickly.

Comments from New York Fed President John Williams on Thursday reinforced this cautious tone. Williams described current policy as only “modestly restrictive,” noting that gradual rate cuts could be appropriate if inflation continues to cool and unemployment drifts higher, while warning that tariffs remain an upside risk to prices. His remarks echoed the market view that the Fed is prepared to ease, but will move carefully to avoid reigniting inflationary pressure.

Looking ahead, investors will also watch Japan’s July household spending and labor earnings data due Friday for fresh insight into the strength of domestic demand.