The US non-farm payrolls data came in unexpectedly weak, combined with a warning from Japan's Finance Minister about potential intervention, sending the yen sharply higher on Friday.
Shortly after the release of the non-farm payrolls data, Japan's Finance Minister, Katsunobu Kato, stated that Japan and the US have maintained close communication and will not hesitate to take action when necessary. He also revealed that he and US Treasury Secretary Scott Bessent have reached a consensus, agreeing that recent foreign exchange market volatility has been driven by non-fundamental demand. This statement has heightened market expectations for possible joint intervention by Japan and the US in the currency market.
As a result, the yen quickly strengthened, with the dollar-yen exchange rate falling as much as 1.1% to 156.68 before paring gains to around 0.5%. Analysts cited in reports pointed out that the yen's rally was primarily driven by the weak non-farm payrolls data, with expectations of a narrowing US-Japan interest rate differential being the main catalyst, while the potential risk of official intervention continues to support market sentiment.
The non-farm payrolls data dealt a heavy blow to the dollar, triggering a sharp rise in the yen.
The US Labor Department reported on Friday that non-farm payrolls decreased by 23,000 in July, far below the consensus estimate of an 80,000 increase from a Reuters poll of economists, while the previous month's figure was also revised down to a gain of 20,000. This marks a rare negative reading for non-farm payrolls in recent years, significantly cooling market expectations regarding the Federal Reserve's monetary policy path.
"The sharp miss in non-farm payrolls means the dollar's decline is logical—look at the short-end of the US yield curve—this move appears fundamentally driven," said Lee Hardman, senior foreign exchange analyst at MUFG. He added that the steep drop in 2-year US Treasury yields confirms this assessment. "A negative non-farm payrolls reading is extremely rare. It's a major downside surprise that clearly suppresses market expectations for the Fed. We expect to see a significant reaction and a broad sell-off in the dollar," Hardman noted.
Japan and the US maintain a coordinated stance, with markets on alert for further intervention.
This yen fluctuation occurs just days after a joint US-Japan intervention. According to a previous report by Wall Street CN, on August 3, Japan's Ministry of Finance confirmed that Japan and the US jointly intervened in the market to buy yen, spending nearly $100 billion over two days. This marked the first coordinated currency intervention between the two countries since 2011 and one of the largest yen intervention operations in history.
However, the market generally believes that intervention can only smooth short-term volatility and is unlikely to change the yen's medium-to-long-term trend. Goldman Sachs has previously pointed out that the root cause of the yen's sustained pressure remains the US-Japan interest rate differential and the Bank of Japan's prolonged difficulty in further raising interest rates. As long as this fundamental condition remains unchanged, official intervention is more akin to "buying time" rather than reversing the trend.
Analysts cited in the report believe that against the backdrop of a weak dollar driven by poor non-farm payrolls data, the continued release of intervention signals by officials will further increase traders' caution in shorting the yen.
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