Dollar Selling Prevails as U.S. Jobs Fall, Yen Briefly Near 156.60

2026-08-08

Yen Jumps Immediately After Data

The yen briefly rose against the dollar to the 156.60 range in New York foreign exchange trading on the 7th, after U.S. employment data showed nonfarm payrolls declined in July, contrary to market expectations. Expectations for an early Federal Reserve rate increase receded, intensifying dollar selling against a broad range of currencies.

The yen, which had been trading in the 158.30 range per dollar, surged by about 1.60 yen within minutes after the data were released at 8:30 a.m. U.S. Eastern time. Dollar selling and yen buying then ran their course, and pressure to sell the yen strengthened again. As of 2 p.m., the yen was trading in the mid-157 range, equivalent to giving back half of the sharp gain.

The yen's struggle to extend gains reflects the strength of the yen-bearish tone rather than dollar buying back. The euro rose immediately after the release from around $1.153 per euro to around $1.158 and then stayed near its highs. The dollar index, which measures the dollar's overall strength against major currencies, is at its lowest level since mid-June.

Rate-Hike Expectations Recede

FedWatch, which shows market participants' expectations for the policy rate based on U.S. interest-rate futures, showed expectations for a September rate increase falling to 43% from 55% the previous day, making expectations for no change dominant. It was the first reversal between the two since mid-July. Looking through year-end, many investors expect rate increases to be limited to one.

Expectations for two or more rate increases fell to 32% from 43%, while expectations for no rate increase rose to 23% from 16%. Expectations for additional rate hikes, which had spread against a backdrop of inflationary pressure, were unwound, reversing dollar buying.

Views Split on Weak Jobs Data

In the July employment report released by the U.S. Labor Department, nonfarm payrolls fell by 23,000 from the previous month. Market expectations compiled by LSEG had called for an increase of 80,000, resulting in a downside miss of more than 100,000. The negative surprise was the largest since February and the second-largest since January 2022.

However, views are divided on whether the decline should be seen directly as a sign of economic deterioration. The main factor pushing down payrolls was a decrease of 50,000 in local government education, and some point to the impact of seasonal adjustment specific to the summer. July employment data have also tended to come in weak in recent years, and some say shifts in seasonal patterns since the COVID-19 pandemic have made adjustment less effective.

James Egelhof of France's BNP Paribas said, 'The weakness in the July figures may reflect noise from seasonal adjustment.' Markets have also not priced in a rapid deterioration in the U.S. economy, and FedWatch shows no view that the Federal Reserve will move to cut rates this year to support the economy.

Contrast With Summer 2024

The situation differs from the turmoil in the summer of 2024, when the yen surged and stock prices tumbled. At the time, in addition to yen-buying intervention by Japanese authorities and expectations for an additional Bank of Japan rate increase, the unemployment rate unexpectedly rose in the July U.S. employment report, triggering the Sahm Rule, which is regarded as a gauge of a U.S. recession. In response, investors' risk aversion intensified rapidly.

Speculative investors unwound accumulated yen-short positions, and the yen surged by as much as about 20 yen. This time, the buildup in yen selling shown in statistics is a common factor, but it has not led to moves warning of a rapid deterioration in the U.S. economy. Since reaching a recent peak in the low-155 range per dollar after the unusual coordinated intervention by Japanese and U.S. authorities, the yen has shown notable heaviness on the upside.

A manager at a U.S. hedge fund said, 'I think the yen is a buying opportunity, but there are not enough catalysts at this point. Rather than betting on a medium-term direction, it is necessary to take agile tactical steps.' The next focus will be the consumer price index, or CPI, due on Aug. 12.

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