USD/JPY forecast: All eyes on US jobs with CPI next week – FOREX Friday

Market impact: bearish near term for USD/JPY, but highly data-dependent.

Christopher Waller’s comments have reduced the market’s confidence in a September Fed hike, shifting the pair’s dominant driver from broad dollar strength to incoming US data. With hike expectations near a coin-flip, the US–Japan yield differential is more vulnerable to compression, which weighs on USD/JPY and can encourage further unwinding of dollar-yen carry exposure.

The immediate catalyst is the September 4, 2026 US employment report. A weak payrolls result, rising unemployment, softer wages, or downward revisions would reinforce the case for a Fed hold and likely pressure US front-end yields and USD/JPY lower. A strong report would challenge the recent dovish repricing, lift Treasury yields, and could generate a sharp USD/JPY rebound—but the reaction may depend heavily on wage growth and the unemployment rate rather than payrolls alone.

Next week’s CPI is potentially more important for the medium-term direction because Waller has explicitly tied his policy preference to the inflation outcome. A soft core CPI would make a September hike less likely and could extend dollar weakness. Conversely, a hot inflation print would revive hike expectations and support USD/JPY, particularly if employment data also proves resilient. The market is therefore pricing a two-stage event risk: NFP determines the initial move, while CPI may validate or reverse it.

The bearish interpretation for USD/JPY is strengthened by the possibility of a carry-trade unwind if US yields fall. FOREX.com has previously highlighted that weaker employment and inflation data can narrow the US-Japan rate differential and trigger further unwinding of USD/JPY positions. However, downside may not be linear: a weak jobs report could also increase broader risk aversion, generating safe-haven demand for the yen and amplifying the move.

The principal upside risk is a strong labor report followed by firm inflation. That combination could quickly restore expectations of a Fed hike, while forcing traders who reduced dollar exposure after Waller’s remarks to reposition. The opposing risk is that even a strong payrolls headline fails to lift USD/JPY if wages, revisions, or labor-force data are soft.

Traders should monitor:

• Payrolls, unemployment, average hourly earnings, and prior-month revisions.
• US two-year Treasury yields and Fed-rate pricing rather than the headline employment number alone.
• August core CPI, particularly services and shelter components.
• Japanese official rhetoric, as renewed intervention concerns could limit upside in USD/JPY near elevated levels; FOREX.com is already framing the pair as exposed to both intervention risk and Fed-hike uncertainty.

Overall, the news creates a negative short-term bias for USD/JPY, but not a durable directional signal. The pair remains vulnerable to a sharp two-way reaction until both the September 4 jobs report and the following week’s CPI clarify whether the Fed is more likely to hold or tighten.