- USD/JPY regains traction on Friday and was supported by a combination of factors.
- The Fed-BoJ policy divergence and a positive risk tone undermine the safe-haven JPY.
- A modest USD uptick remains supportive, though bulls seem reluctant ahead of the NFP.
The USD/JPY pair attracts some buying near the mid-132.00s on Friday and reverses a part of the previous day’s decline. The pair maintains its bid tone through the early European session and is currently trading around the 133.25 region, just a few pips below the daily high.
A big divergence in the monetary policy stance adopted by the Federal Reserve and the Bank of Japan, along with a positive risk tone, weighs on the safe-haven Japanese yen. Apart from this, a modest pickup in the US dollar demand turns out to be a key factor lending support to the USD/JPY pair.
It is worth recalling that the BoJ has repeatedly reiterated to stick to its ultra-easy policy settings and its commitment to keep the 10-year Japanese government bond yield around 0%. In contrast, several Fed officials hinted this week that more interest rates are coming in the near term.
Investors, however, have been pushing back against the idea of a larger rate hike at the September FOMC meeting. This, along with the recent fall in the US Treasury bond yields, is holding back the USD bulls from placing aggressive bets and keeping a lid on any meaningful gains for the USD/JPY pair.
Traders also seem reluctant and prefer to move on the sidelines ahead of the closely-watched US monthly jobs data, due later during the early North American session. The popularly known NFP report will influence the USD price dynamics and provide a fresh directional impetus to the USD/JPY pair.
Technical levels to watch