Slowing U.S. Jobs, Surging Yen: Markets Brace for More Volatility

US job growth is expected to slow in January due to weather disruptions, but strong wages and low layoffs suggest the Fed will hold off on rate cuts until mid-year. Meanwhile, the Japanese yen hit a two-month high against the dollar as expectations rose for earlier BoJ rate hikes.
In the bond market, US Treasury yields edged up amid easing trade tensions with Canada and Mexico, though concerns over upcoming Chinese tariffs and fiscal policies keep volatility elevated. Investors now await key nonfarm payroll data to gauge the next market moves.

US job growth likely slowed in January due to wildfires in California and severe winter weather across much of the country, though the labor market remains resilient. Analysts expect nonfarm payrolls to have increased by 170,000, down from December’s 256,000 surge, while the unemployment rate is forecast at 4.1%.
Despite slower growth, strong wage gains and low layoffs suggest the Federal Reserve is unlikely to cut interest rates before mid-year. However, revisions to employment data and concerns over immigration policies, tariffs, and potential government job cuts under the Trump administration add uncertainty to the labor market outlook.

The yen climbed to a two-month high in the upper 151 range against the US dollar on Thursday in Tokyo, driven by growing expectations that the BoJ may raise interest rates sooner than anticipated. This surge followed comments from a BoJ board member suggesting a policy rate hike to at least 1% by late fiscal 2025 after rates were raised to 0.5% in January.
The dollar weakened amid softer US economic data and easing inflation concerns after delayed tariffs on Mexico and Canada. Meanwhile, Japan’s stock indexes rose on tech gains but were capped by the stronger yen pressuring exporters.

The Japanese yen’s (JPY) outlook remains strong across most major currency pairs, particularly against the USD, GBP, and NZD, as the BoJ moves away from its ultra-loose monetary stance.
The yen recently climbed to a two-month high against the US dollar, driven by speculation that the BoJ may raise interest rates sooner than expected. Meanwhile, weaker US economic data and expectations of Federal Reserve rate cuts later this year have put pressure on the dollar. If the BoJ continues its tightening cycle while the Fed moves towards easing, the yen could gain further against the dollar. However, any strong US economic data could limit the yen’s upside.
The yen has gained ground against the British pound following the Bank of England’s recent rate cut to 4.5% and a downgraded growth outlook for 2025. While the BoE maintains a cautious approach due to inflation concerns, Japan’s tightening monetary policy could continue to support the yen’s strength against the pound. However, any unexpected positive developments in UK economic data could slow the yen’s momentum.
The yen’s performance against the euro has been more balanced. The European Central Bank remains cautious about additional tightening due to weak eurozone growth, while the BoJ’s potential rate hikes support yen appreciation. That said, if eurozone data shows signs of recovery or if the ECB adopts a more aggressive stance, the yen’s gains could be capped.
The yen has shown resilience against the Australian dollar, benefiting from the BoJ’s hawkish shift and concerns over China’s economic slowdown, which weighs on Australia’s export-driven economy. However, the Reserve Bank of Australia (RBA) remains committed to its own tightening cycle due to persistent inflation, which could offset some of the yen’s strength. The balance between these opposing monetary policies will be key to the AUDJPY outlook.
The yen is also gaining traction against the New Zealand dollar. The Reserve Bank of New Zealand (RBNZ) has signaled a more cautious approach to rate hikes amid slowing domestic growth, contrasting with the BoJ’s tightening bias. Additionally, global risk-off sentiment tends to favor the yen as a safe-haven currency, which could further pressure NZDJPY. However, any hawkish surprises from the RBNZ could temper yen gains.

US Treasury yields rose slightly on Thursday, stabilizing after previous declines as markets reacted to the temporary avoidance of a trade war with Canada and Mexico. However, concerns linger with Chinese tariffs on US goods set to take effect on February 10.
The 10-year yield rose to 4.438%, while the 2-year and 30-year yields edged up to 4.208% and 4.648%, respectively. Investors are now focused on Friday’s nonfarm payrolls report, which is expected to show a slowdown in job growth, and on upcoming fiscal policy decisions, which could fuel further bond market volatility.

As US job growth cools and the Federal Reserve holds off on rate cuts, market attention is shifting to key data releases and policy developments. The Japanese yen continues to strengthen, driven by expectations of earlier BoJ rate hikes, while US Treasury yields inch higher amid lingering trade and fiscal uncertainties. With nonfarm payroll data on the horizon and global central banks diverging in their policy paths, markets are poised for continued volatility in the weeks ahead.