USD/JPY hangs near weekly low, just below mid-145.00s; focus remains on US NFP

The USD/JPY pair touches a fresh weekly low during the Asian session on Friday, albeit manages to recover a few pips in the last hour and currently trades just below mid-145.00s, down less than 0.10% for the day.

The US Dollar (USD) revreses an intraday dip and looks to build on the previous day's solid bounce from the very important 200-day Simple Moving Average (SMA), which, in turn, is seen as a key factor lending some support to the USD/JPY pair. The USD bulls, however, seem reluctant to place aggressive bets in the wake of the uncertainty over the Federal Reserve's (Fed) future rate hike path.

It is worth recalling that the US macro data released earlier this week - the ADP report and the second estimate of the US Q2 GDP print - indicated the resilient US economy might be starting to lose steam. This fueled speculations that the Fed might be forced to soften its hawkish stance. That said, Thursday's US PCE Price Index keeps the door open for one more 25 bps lift-off by the end of this year.

The prospects for further policy tightening by the Fed, meanwhile, lead to a modest recovery in the US Treasury bond yields and act as a tailwind for the Greenback. Traders, however, seem reluctant and prefer to wait for the release of the closely-watched US monthly employment details – popularly known NFP report – for some meaningful impetus later during the early North American session.

In the meantime, a more dovish stance adopted by the Bank of Japan (BoJ), along with the disappointing Japanese macro data and a positive tone around the US equity futures, might undermine the safe-haven Japanese Yen (JPY) and limit losses for the USD/JPY pair. In fact, the BoJ is the only central bank in the world to maintain negative interest rates and is anticipated to stick to its ultra-easy policy settings.

Moreover, BoJ board member Toyoaki Nakamura said this Thursday that it was premature to tighten monetary policy as recent increases in inflation were mostly driven by higher import costs rather than wage gains. This follows BoJ Governor Kazuo Ueda's dovish remarks last week, saying that the underlying inflation remains a bit below the 2% target, and ensures the status quo until next summer.

On the economic data front, the latest survey from Jibun Bank showed that the manufacturing sector in Japan continued to contract in August. In fact, the Manufacturing PMI was finalized at 49.6. Adding to this, Japan's Finance Ministry reported that Capital Spending increased by 4.5% from a year earlier during the April-June period, down from 11.0% previous and missing consensus estimates for a 5.4% rise.

The aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, it will be prudent to wait for strong follow-through selling before confirming the formation of a near-term top around the 147.35-147.40 area, or the highest level since November 2022 touched earlier this week. Nevertheless, spot prices remain on track to snap a four-week winning streak.

Technical levels to watch