USD/JPY fell sharply during Friday’s session following a very weak U.S. payrolls report, which has prompted markets to increase the odds of a 50bp rate cut from the Federal Reserve.
Currently, U.S. rates are pricing in 42bps of easing at the September meeting, up from 32bps pre-NFP, while by year-end pricing is at 112bps.

Now of course, markets can often get ahead of themselves when pricing in Fed policy.
Keep in mind, that we started the year with seven 25bp cuts priced in.
However, the downside surprise in the NFP report had been telegraphed by the soft batch of employment data via jobless claims and the ISM manufacturing report.

What’s more, with the well-documented Click here now reportedly depleted, it is not hard to imagine that weakness in the jobs market can shift the narrative towards a hard landing from a soft landing.
The Fed will have another set of NFP figures to digest before its next meeting, but a similar message to today’s report and a 50bp cut is likely to become the base case.

On the technical front, USD/JPY has made a clean break below support at 148.50, opening the door for a test of 146.50, which marks the March lows.
Through, 146.50 and there is little in the way of notable support until 144.50-145.

On most measures, USD/JPY is deeply oversold.
The daily RSI is at the lowest level since 2003 with the pair falling 15 big figures in as little as 16 trading sessions.
Though, as long as U.S. yields continue to drift lower, so to will USD/JPY.

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