USD/JPY Rallies as USD Pulls Back Amid Softer Jobs Report

The US dollar's decline following the July non-farm payrolls report was short-lived as USD/JPY rebounded to pre-dip levels. The pair had fallen from 158.30 to around 156.70 after the softer-than-expected jobs report, which showed a drop in government jobs and no boost from World Cup-related leisure and hospitality jobs.

The only positive was that the unemployment rate ticked lower, but this came with a slight decline in the participation rate. Meanwhile, wage pressures cooled, leading markets to pare back further on Fed pricing for September. This could keep a lid on any major dollar upside.

Markets now turn towards the US CPI report for July, which will likely determine whether odds of a September rate hike are reduced further. A hot report would see markets pull back on rate hike expectations, while anything less than that might help keep a lid on USD/JPY gains.