Non-farm Payrolls: What’s next for USD/JPY and US policy?

USD/JPY jumped and gained in the four hours following the February non-farm payroll figures. The reason was simple: the US economy created 353K new jobs versus the forecasted figure of 175K.
   

If the stock indices were a proxy for the economy, then numbers would likely be good again. However, nothing is more complicated to predict than the outcome of the Non-farm payrolls.   
 

As for the report on Friday, economists project that 195K new jobs were created. Could the estimate be too low once more? Since December, we have had higher than-projected Non-farm payroll numbers.   
 

Wages are expected to increase by 4.3% from last year, a slower pace than the 4.5% in January. The unemployment rate is anticipated to remain at the very low level of 3.7%, a problem for the US central bank. The unemployment rate is too low, keeping inflation too high.    
 

To combat the high economic growth in the USA and lift the unemployment rate, US interest rates were increased. However, we do not see any weakness in the weekly US jobless claims figures, and leading economic indicators like the PMIs are pointing higher in the months ahead, suggesting that the unemployment rate will not rise just yet.   
 

What impact could this have on the US Dollar?   

Another strong NFP reading could delay the start of rate cuts in the USA. Fed funds futures are pricing in 25 bps rate cuts at the June 12 meeting, with a probability of 70%. A strong NFP reading could move the first rate cut to the July or September meetings. A break to the 150.93 level in USD/JPY could send the pair to 151.88 on better-than-expected figures.   
 

On the other hand, a very weak NFP reading will further increase the likelihood of a rate cut and lower the USD. In this scenario, USD/JPY could decline below 149.06 and send the price to the next support level at 147.73. It would also play well with the trend that the Bank of Japan is about to increase interest rates later this year. For now, the futures markets are giving it a 50% probably of a rate increase at the BoJ March rate meeting. 
  

Another market to watch is gold. As we wrote on Monday, the price is ready to soar and has indeed turned higher. I suspect a drop to the breakout point in $2088 will likely be met with cheers for late buyers. As for the pattern mentioned in the article linked above, it will remain active as long as the price trades above $2088.   
 

USD/JPY 4-hour chart 

Following our latest update, the USD/JPY pair dipped below 149.06 and touched the anticipated support level of 147.73. The currency's position at 13:05 GMT appeared slightly oversold, hinting at an impending rebound. However, the scenario remains fluid, with the Non-Farm Payrolls (NFP) report due in 24 hours.
 

Should the pair experience a decline towards the February low of 145.86 ahead of the NFPs but not trade below this level, a robust rebound could occur significantly if the NFP data surpass expectations.