The strong US jobs data triggered a rebound in the US dollar index last week as expectations for Fed rate hike in December increased. The positive movement in the US dollar has pushed the USDJPY higher as the gap between US dollar and Japanese yen widened. But the increase in wages in Japan also strengthens the case for a rate hike by the BoJ, which may provide some support for the yen. The market will now look for US CPI data on November 10 to find some clues about the next move by the Fed in early 2027.
US Jobs Report Shows Stronger Hiring and Lower Unemployment
The US jobs report on Friday increased expectations of rate hike in December. The BLS reported that the labor market added 165K jobs in October, which is up sharply from 60,000 in September. The chart below shows that the number of jobs has remained strong during the past three months.
Moreover, cyclical employment has also increased to 27.684 million. This is the highest level since May 2001 which was seen during the dot-com bubble. This surge in cyclical employment suggests robust economy.
The unemployment rate dropped to 4.1% despite the increase in participation rate.
The chart below shows that the labor force participation rate increased from a low of 61.4% in July 2026 to a high of 61.9% in October 2026.
The strong economy is further reflected in the average weekly hours of all employees which increased to 34.4 hours.
The average weekly overtime hours for production and non-supervisory employees increased to 4.1 hours. The chart below shows that average weekly overtime hours have continued to increase since March 2024. This surge in overtime hours is due to AI data center buildout.
The chart below shows that employment in temporary help services continued to increase from October 2025. It is found that the temporary help services increased to 2.526 million in October 2026. This further suggests that the economy is recovering.
The increase in the quits rate also suggests growing worker confidence in the labor market. The chart below shows that total quits rate increased to 2.1% in September from 1.9% in August.
The growth in aggregate weekly hours for all employees has increased in 2026. The chart below shows that this growth is now converging with real GDP growth. This suggests that the economy is recovering as labor market recovers.
USD/JPY Price Forecast
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See all USD/JPY forecastsDecember Fed Rate Hike Odds Near 80% Ahead of US CPI
Despite the strong jobs data, the current economic conditions index remains at 51 points in November 2026, which is historically low.
After the release of the jobs data, the probability of rate hike in December increased to nearly 80% as per the FedWatch tool. The Fed held the target range at 3.75% to 4% in October. San Francisco Fed President Mary Daly also highlighted importance of further rate increases to bring down inflation.
The next important event for the market to watch is the CPI data on November 10. If the inflation data is strong, the market will likely price in more hikes in early 2027. But the soft data may give Fed more room to wait before raising rates again.
Japan’s Rising Wages Strengthen the Case for a BOJ Rate Hike
The real wages in Japan increased by 2.2% in September from the year earlier. The chart below shows that the average cash earnings have continued to increase consistently since November 2025. The positive patterns in real wages may support household spending as borrowing costs increase.
Bank of Japan Governor Kazuo Ueda said that higher energy costs were starting to feed into consumer prices. The wage data and comments from Ueda strengthened the case for rate hike from 1.25% to 1.5% in December.
US Dollar Index Forecast as Treasury Yields Rise
The US dollar index surged higher after the release of US jobs data. The index gained nearly 0.31% for the week and closed the week at 102.28. This positive reversal produced constructive weekly candle on the chart.
The two-year Treasury yield increased from 4.46% to 4.52% as the market increased expectations for Fed hike. The rebound in Treasury yields supported positive movement in the US dollar index. Therefore, the index can remain strong over the next few days as Treasury yields continue to rebound.
From a technical perspective, the US dollar index has rebounded from the low of 95.55 in January 2026. The index surged higher to reach a high of 102.945 in October 2026 and remains positive after breaking above resistance at 100.50. This suggests continued positive movement in the US dollar index and the market is expected to buy on any dips.
The strong consolidation in the US dollar index from July 2025 to September 2026 near support within the ascending channel pattern suggests positive momentum and a strong rally towards the 104 area in the short term.
A break above 104 may push the index towards long-term resistance at 106 to 107. The index remains constructive within the ascending channel pattern. But a break below 96 may open the way for strong drop towards 90.
USD/JPY Forecast as the US–Japan Yield Gap Widens
USDJPY also remained strong and gained 0.58% last week. The two-year yield for Japan dropped to 1.73% and widened the gap with the US Treasury yield to about 2.8%. The wide gap between these two yields makes it more attractive to borrow yen and buy higher yielding dollar assets. The BoJ will release the summary of opinions on Tuesday. Signs of strong support for further hikes may lift Japanese yield and support the yen.
A Break Above 160 Could Lift USD/JPY Towards 164
From a technical perspective, USDJPY has been trading within ascending broadening wedge pattern since the lows of April 2025. The test of support at 152.88 in September 2026 led to a strong rebound and the pair is now moving towards resistance at 160.
A confirmed break above 160 will likely open the way for further upside towards 164. On the other hand, if the pair breaks below 154, it will likely break down from the ascending broadening wedge pattern and trigger strong drop toward 152. A confirmed break below 152 will likely open the way for deeper correction toward the 145 area.
The pair shows constructive price action within the ascending channel pattern as seen in the chart below. A break above the 160 to 162 range will likely open the way for strong rally towards the 175 area. This target is seen by the resistance of the ascending channel pattern. The rally in the pair may be supported by gains in the US dollar index and weakness in the yen.
Near-Term Support at 157.30 and Resistance at 158.67
The price action for the pair remains neutral in the short term as it has been consolidating between the 50- and 200-day SMAs over the past 30 days.
A break above the 200-day SMA at 158.67 will likely open the way for a strong rally towards the 160 area. But a confirmed break below the 50-day SMA at 157.30 will likely open the way for deeper correction toward the 155 area.
The V-shaped recovery pattern in September suggests that the pair must break to the upside to build positive structure. But a failure to break above 160 may trigger further downside before the next rally.
What to Watch Next
The US jobs data shows that hiring increased in October and the unemployment rate dropped even as more people joined labor force. The expectations of a rate hike in December are now high. The market is now watching for the US CPI data on Tuesday that may provide some clues about the Fed rate decision in early 2027. The soft data may give the Fed some room to wait. But strong data may strengthen the possibility of further rate hikes in early 2027. The high US Treasury yields continue to support the US dollar index.
The US dollar has increased after the US jobs data and the short-term trend points to the 104 level. A break above 104 will likely open the way for rally to 106-107. The widening gap between the yields for US and Japan favors the US dollar against the yen. But the increase in wages in Japan strengthens the case for a hike by the BoJ. If Japanese yields increase, that gap may narrow and support the recovery in the yen. A confirmed break above 160 in USDJPY may push the pair to 164. But a break below 157.30 could bring the pair back towards 155.
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