USD/JPY Tests 156.70 as Yen Rebound Challenges Dollar Recovery Ahead of NFP

The USD/JPY pair is attempting to recover after one of the yen’s sharpest weekly rallies in recent months. The dollar rebounded from around 155.30 to the 156.00-156.40 area on Friday, but upside momentum remains limited as traders assess whether the yen’s advance can continue.

Reuters reported that the yen strengthened as much as 2.2% this week, reaching 155.25 per dollar before retreating toward 156.45. That puts the yen on track for its strongest weekly performance since late July, when Japan and the United States carried out a coordinated currency intervention.

The recent move has revived speculation about official intervention, but there is no evidence that Japanese authorities directly bought yen during Wednesday’s initial plunge. MUFG Research said the Bank of Japan current-account data did not indicate intervention, although Japanese officials have maintained their warning that excessive currency moves could prompt action.

Japan’s top currency diplomat Atsushi Mimura said Friday that Tokyo remained alert to exchange-rate developments and continued communicating with U.S. officials.

156.70 is the first resistance

The technical picture remains bearish in the short term. USD/JPY is trading below the former support area around 156.70, which now becomes the first major resistance level. A sustained recovery above that area would reduce immediate downside pressure and expose higher levels around 158.05 and the 200-day SMA near 158.50.

The pair’s sharp decline from the 160 area has changed the near-term structure. According to the supplied technical setup, momentum indicators remain negative, while the RSI is near 34, close to oversold territory. The reading suggests selling pressure remains significant, but it also leaves room for a corrective rebound if buyers regain control.

The key levels are:

• Current area: 156.30-156.40
• Resistance: 156.70
• Next resistance: 158.05
• 200-day SMA: 158.50
• Major support: 155.00
• Lower targets: 154.00 and 152.20

The 155.00 area is especially important because it has held several downside attempts since May. A decisive break below that level would strengthen the bearish setup and bring 154.00 into focus, followed by the year’s lows around 152.20.

Conversely, reclaiming 156.70 would give the dollar a technical foothold. A move above 158.50 would provide stronger evidence that the recent yen surge had run its course.

BOJ and NFP shape the outlook

The yen’s recovery is being supported not only by intervention concerns but also by rising expectations for a more hawkish Bank of Japan stance. BOJ board member Hajime Takata said the central bank should respond flexibly to inflation rather than follow a fixed timetable for rate increases. His comments increased speculation that the BOJ could raise rates at its September 17-18 meeting.

Markets are now pricing roughly a 75% probability of a 25-basis-point BOJ rate increase this month, according to Reuters. Some traders have also considered the possibility of faster tightening, although analysts caution that market pricing may be too aggressive.

The U.S. side of the equation is also changing. Federal Reserve Governor Christopher Waller has indicated that he could support keeping interest rates unchanged at the September 15-16 meeting if inflation data continue to improve. His comments reduced expectations for an immediate Fed increase and weakened the dollar.

Friday’s U.S. nonfarm payrolls report is therefore critical. Markets expect around 56,000 new jobs in August, with the unemployment rate forecast near 4.1%. A stronger report could lift U.S. yields and support USD/JPY, while weaker employment could reinforce expectations for steady Fed rates and keep the dollar under pressure.

The policy divergence remains important. If the BOJ moves toward tighter policy while the Fed becomes less restrictive, the interest-rate gap between Japan and the United States could narrow. That would reduce one of the structural supports for USD/JPY and potentially extend yen gains.

Conclusion

USD/JPY has recovered toward 156.40 after a sharp yen-driven decline, but the rebound faces immediate resistance at 156.70. A sustained break above that level would open the way toward 158.05 and the 200-day SMA near 158.50. Failure to reclaim 156.70 would leave the pair vulnerable to another test of 155.00, with 154.00 and 152.20 below. The yen is being supported by rising BOJ rate-hike expectations and Japanese intervention warnings, while the Federal Reserve’s evolving policy outlook and Friday’s U.S. payrolls report could determine whether the dollar can stabilize.