USDJPY - Where will the directions change? Basis points under scrutiny ahead of employment data

The currency market is waiting for several key releases this week that could change the valuation of the USDJPY pair. The key points are the basis points, which are units that financial analysts monitor when analyzing central bank decisions. Currently, the market prices in exactly 62 basis points of potential rate cuts by the Federal Reserve by the end of the year — an assumption that may change as new economic indicators are published.

Yesterday’s weak US ISM Manufacturing PMI pushed the dollar down, despite the data not surprising anyone. This movement reflects current market sentiment, where every employment indicator is traditionally scrutinized for its impact on exchange rates.

How Basis Points Decide the Fate of the Dollar and Yen

The number of basis points the market currently discounts for Federal Reserve policy is essentially a statement about the dollar’s future. When investors expect a 62 basis point cut, it clearly indicates they anticipate gradual rate reductions. This outlook consistently puts downward pressure on the dollar, as lower rates reduce the attractiveness of assets denominated in USD.

On the other side is the Japanese yen. Recent inflation data from Tokyo came in below expectations, but this doesn’t drastically change the picture. The Bank of Japan still prioritizes wage growth as a policy goal, and markets currently price in only about 42 basis points of monetary tightening by Japanese policymakers over the year. This fundamental difference in outlook—rate cuts versus hikes—forms the basis for USDJPY movements.

Market Prices in 62 Basis Points of Cuts — What Does This Mean for USDJPY?

The gap between the US and Japanese interest rate scenarios is becoming more pronounced. While the US may cut rates by 62 basis points, Japan might only implement two or three rate hikes this year. This asymmetry is key to understanding why USDJPY could move in different directions.

In this context, attention should be paid to the US Non-Farm Payrolls report due Friday. If employment data exceeds expectations, the market will likely recalibrate the number of basis points of rate cuts — supporting the dollar. Conversely, if employment disappoints, the number of expected rate cuts could increase further, pressuring the US currency downward.

Technicals Say One Thing: Watch These Price Levels

On the daily chart, USDJPY shows a clear support zone around 154.50, where buyers consistently intervene. This is a level to watch — a break below it opens the door for a move toward the main trend line previously set at 151.00.

On the other hand, buyers see potential to test the 160.00 level if the pair stays above support. The four-hour chart shows a small upward trend that could provide additional support for bulls. Traders’ strategies here focus on breaking this trend line downward, which would open the way toward the previously mentioned support at 154.50.

Meanwhile, on the hourly chart, the pair is moving within an expanding wedge pattern. Bulls will look for support at the lower boundary, while bears monitor the upper limit for a potential breakout higher. Red markings indicate today’s average session range and can serve as a reference point for traders.

Spring Wage Data Will Change the Game

In the coming days, economic data will likely shift the outlook for USDJPY. Tomorrow, we’ll get the US ADP employment report, ISM Services PMI, and job openings data. On Thursday, Japan’s wage statistics will be released — these are especially important as the Bank of Japan views wage growth as a condition for further policy tightening.

On Friday, the week reaches its climax with the Non-Farm Payrolls report. This will be the moment when the number of basis points of rate cuts may be recalibrated upward or downward, directly impacting exchange rates. Weak figures could increase expectations for more rate cuts, supporting the yen. Strong numbers could reduce pressure on the dollar and strengthen the bullish position on USDJPY.

Summary: Basis Points Are the Key Word of the Week

The entire scenario for USDJPY depends on how markets recalibrate the number of rate cuts in the US and hikes in Japan. Watching support at 154.50 and the attractive risk-reward ratio for bulls, traders await how macroeconomic releases will alter the equation regarding basis points. For bears, a break below and movement toward 151.00 remains a key possibility, especially if rate cut expectations increase. In any case, this week’s developments should be closely monitored.