Yen pummels US dollar, nonfarm payrolls next

The Japanese yen continues to sparkle on Friday. In the European session, USD/JPY is trading at 144.81, down 0.86% on the day. The yen is trading at its strongest level since September 2024 and is up 3.3% this week.

Investors are still digesting the massive losses sustained in the financial markets, but will have to shift and focus on today's US nonfarm payrolls. The market estimate stands at 135 thousand, lower than the February gain of 151 thousand. The US labor market has been softening at a gradual pace and the Fed is hoping that trend continues.

Federal Reserve policymakers were looking at two rate cuts this year, but President Trump's bombshell tariff announcement will force the Fed to re-examine its growth and inflation forecasts.

What can we expect from the Fed?

That is no simple question, as the tariffs have sent the equity markets tumbling and deep uncertainty hangs in the air. The tariffs will boost inflation but also dampen growth, making for a tricky balance for the Fed. The money markets expect a slower US economy to dictate rate policy rather than inflation and that could mean as many as four cuts in 2025 if the economy tips into a recession.

Japan's household spending recovered in February with a gain of 3.5% m/m, after a 4.5% decline in January. This crushed the market estimate of 0.5% and was the strongest pace of growth since March 2022. The Bank of Japan is keeping a close eye on consumption as it determines when to raise interest rates and it is unclear how the new US tariffs will affect consumer confidence and spending.