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10 Mar 2023

USD/JPY sticks to BoJ-inspired gains, remains below 137.00 ahead of US NFP report

  • USD/JPY regains positive traction on Friday as BoJ keeps policy settings unchanged.
  • Reduced bets for a 50 bps Fed rate hike in March weigh on the USD and cap gains.
  • The risk-off mood lends support to the JPY and also acts as a headwind for the pair.
  • Traders now look forward to the US NFP report for some meaningful opportunities.

The USD/JPY pair shows some resilience below the 100-day Simple Moving Average (SMA) and attracts fresh buying near the 135.80 region, or a multi-day low touched earlier this Friday. The pair stick to its gains through the first half of the European session and is currently placed around the 135.75 area, just a few pips below the daily peak.

The Japanese Yen (JPY) fell sharply on the last day of the week after the Bank of Japan (BoJ) maintained its ultra-dovish stance and left monetary policy settings unchanged. The decision was widely on expected lines, though some analysts were speculating that Haruhiko Kuroda would tweak the yield curve control (YCC) at his last policy meeting as BoJ governor. This, in turn, sent the Japanese bond yields tumbling, which, in turn, weighed on the domestic currency and assisted the USD/JPY pair to regain positive traction.

That said, the prevalent risk-off environment - as depicted by a sea of red across the global equity markets - helps limit losses for the safe-haven JPY. Apart from this, some follow-through US Dollar selling contributes to keeping a lid on any further gains for the USD/JPY pair, at least for the time being. Market participants were forced to reassess expectations for a jumbo 50 bps lift-off at the March FOMC meeting after a larger-than-expected rise in the US Weekly Jobless Claims, which was seen as the first sign of a softening labor market.

Reduced bets for a more aggressive policy tightening by the Fed lead to a further decline in the US Treasury bond yields and keep the USD bulls on the defensive. Traders, however, seem reluctant and prefer to move to the sidelines ahead of the release of the closely-watched US monthly employment details, popularly known as NFP. This, along with the latest US consumer inflation figures, due next Tuesday, will influence the Fed's rate-hike path, which will drive the USD and provide a fresh directional impetus to the USD/JPY Pair.

Technical levels to watch

 

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