(Bloomberg) -- The yen rallied after a weaker-than-expected US jobs report spurred bets for earlier interest-rate cuts from the Federal Reserve and weighed on the dollar, easing speculation Japan may step into the market again to support its currency.

Japan’s currency rallied more than 1% to 151.86 per dollar after data showed US employers scaled back hiring in April and the unemployment rate unexpectedly rose. The market now expects the Fed will deliver its first reduction in September compared with November earlier this week, narrowing the wide differential with borrowing costs in Japan — where rates are near zero.

The repricing puts the yen on course for its best weekly advance against the greenback since November 2022. It marks a sharp turnaround from a selloff that sent it to 160 per dollar for the first time since 1990 on Monday. To stem losses, the Ministry of Finance probably bought the yen twice this week, though Japan’s top currency official Masato Kanda has declined to comment on whether the authorities had intervened.

The US payrolls report is “good news for the Japanese Ministry of Finance and their battle to quash yen weakness,” said Michael Brown, a researcher at Pepperstone Group Ltd. in London.

Traders will be closely watching ISM services numbers, due later this afternoon, for more hints on the health of the US economy. Earlier this week, the Fed signaled fresh concerns about inflation and indicated it was likely to keep borrowing costs elevated for longer. 

US nonfarm payrolls advanced 175,000 last month, the smallest gain in six months, signaling demand for workers is moderating. The number put further pressure on the dollar, which has been on a downward trend since Chair Jerome Powell struck a less hawkish-than-feared tone on Wednesday. 

While the greenback has weakened against all of its major peers this week, its move against the yen has been most pronounced. The Japanese currency is up 4% against the dollar this week.

“The threat of repeated official intervention by the BOJ is clearly helping to keep USD/JPY under pressure,” said Stuart Cole, chief macro economist at Equiti Capital in London. “Today’s payrolls report has very much cemented Jerome Powell’s assertion that interest rates could still be cut this year, the outcome of which will work in the yen’s favor.”

The yen is still down over 11% in the past year, making it the worst performer among major currencies. Sentiment has been so poor that bearish wagers dominated the market even after the Bank of Japan raised the short-term policy rate for the first time since 2007 in March.

The nation’s inflation has mostly held above the BOJ’s target of 2% in the past two years driven mainly by the weak currency. That’s fueling public discontent with Prime Minister Fumio Kishida’s administration.

Valentin Marinov, head of G-10 currency research at Credit Agricole CIB, said there’s still a chance that Japanese authorities could step in later Friday or Monday to maximize the impact of their earlier intervention, exploiting thinner liquidity on public holidays in Asia and the UK.

“They still have some powder left and may still want to give USD/JPY another push,” he said. “I would not be surprised if they come in again later today.”

--With assistance from Alice Gledhill.

(Updates with context, analyst comments and prices throughout.)

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