NFP in Focus! BOJ Holds Rates, USD Surges - What's Next For JPY?

The Bank of Japan keeps rates unchanged at 0.5% as expected, reinforcing its wait-and-see approach. Inflation projections are revised upward—from 2.2% to 2.7% by the end of 2026—but policymakers still don’t see enough underlying inflation to justify a hike. They're looking for broader price pressures: rising wages, stronger domestic demand, and sustained corporate activity. Until that materialises, no action.

Despite the unchanged policy, USD/JPY rallies sharply. The yen weakens, and the pair climbs over 200 pips in less than two days—from 148 to 150—as markets interpret the BOJ’s caution as dovish. I see this move as a sign that the yen remains vulnerable unless the BOJ signals imminent tightening. I’m watching for any future shift in language. A real commitment to rate hikes would be my signal to short USD/JPY.

Meanwhile, the U.S. dollar index breaks above the 100 level and heads toward 101. Strength here is broad-based, supported by resilient U.S. data and higher-for-longer Fed expectations. But tonight’s non-farm payrolls (NFP) could shift the picture.

Consensus expects 106,000 jobs added, down from 147,000 prior. Unemployment is forecast to tick up slightly from 4.1% to 4.2%. Average hourly earnings are projected to rise 3.8% year-on-year. These figures are mixed. If NFP surprises to the upside—say, 110K+—it reinforces USD strength and supports further downside in EUR/USD.

For now, I’m sticking with the trend: EUR/USD remains bearish, with my earlier targets at 1.15 and 1.14 already met. I’m watching for continuation. As long as U.S. growth data holds, I anticipate EUR/USD lower and USD/JPY higher.

All eyes on NFP. Let’s see how the market reacts.

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