The dollar is under pressure, and the yen remains under pressure as US economic data signals.

The forex market has turned its attention to the US labor data released on Thursday, which bolstered the fundamentals for the US dollar (USD) to continue its upward movement for the third consecutive day. Under such market conditions, the USD/JPY currency pair has risen to the 157.00 level, while the Japanese yen still faces pressure from broader factors.

Labor Market Data Reinforces Fed’s Position

The US Department of Labor announced that the number of initial unemployment claims for the week ending January 3rd was 208,000, below market expectations of 210,000. Although this figure is higher than the revised previous week at 200,000, it still indicates a strong labor market.

Meanwhile, the continuing unemployment claims increased to 1.914 million from the previous 1.858 million. The 4-week moving average of initial claims shows signs of strength, decreasing to 211,750 from 219,000.

Clear Improvement in Trade Balance Supports Dollar Strength

In addition to labor data, the US dollar was supported by a significant improvement in the US trade balance. The US Census Bureau announced that the goods and services trade deficit in October narrowed to only $29.4 billion, below market expectations of $58.9 billion.

This figure represents the lowest deficit since June 2009. Imports fell to their lowest level in 21 months, while exports reached their highest level on record. This supports the view that the US economy remains resilient.

The Dollar Index Remains High; US Bonds Rise

The US dollar index (DXY), which measures the dollar’s strength against a basket of six major currencies, traded at 98.85, remaining near the highest levels recorded in the past month. US government bond yields also increased, further strengthening the dollar.

Fed Pauses, Market Anticipates Calm

Strong labor and trade data eased concerns about a potential slowdown in the US economy. This supports the view that the Federal Reserve can wait patiently at its January 27-28 meeting.

CME FedWatch tools show that the market prices in about an 88% chance that interest rates will remain unchanged. However, some investors still expect two rate cuts this year. The upcoming non-farm payrolls (NFP) report on Friday is expected to shape short-term expectations.

Yen Faces Pressure from Tensions

For Japan, the yen remains under pressure amid rising trade tensions with China. Beijing announced new export restrictions on “dual-use” goods to Japan, citing security reasons. Additionally, China has begun an investigation into dumping of dechlorosilan, a key material used in semiconductor manufacturing from Japan.

Slow Growth in Japanese Labor Income

Data released shows that Japan’s cash earnings growth in November continued to be weak, increasing by only 0.5% year-on-year, well below market expectations of 2.3%. It also declined sharply from the revised previous month’s reading of 2.6%. Such conditions continue to exert downward pressure on the yen.

Major Currency Movements Today

The US dollar broadly strengthened, reaching its highest against the New Zealand dollar. It also appreciated approximately 0.07% against the euro, 0.17% against the pound sterling, and 0.11% against the Japanese yen. The Canadian dollar strengthened by 0.34%, and the Australian dollar by 0.37%.

In this market context, investors should monitor the upcoming NFP data next week to better understand the future direction of the dollar and yen.