USD/JPY holds steady below mid-130.00s post-NFP, downside remains cushioned

The USD/JPY pair surrendered its modest intraday gains to the weekly high and eased back closer to the daily low, around the 130.15 region, in reaction to the mixed US monthly jobs report.

The headline NFP print showed that the US economy added 428K new jobs in April as compared to the 391K anticipated. However, the higher-than-expected reading was offset by a slight downward revision of March's reading to 428K from the 431K reported previously. Moreover, the unemployment rate missed consensus estimates and held steady at 3.6% during the reported month.

The report further revealed that Average Hourly Earnings rose 0.3% MoM in April and 5.5% YoY as against 0.4% and 5.5% expected, respectively. The data forced the US dollar to extend its modest pullback from a two-decade high. Apart from this, a weaker risk tone benefitted the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair.

That said, a big divergence in the monetary policy adopted by the Fed and the Bank of Japan helped limit any deeper losses, at least for the time being. The markets seem convinced that the Fed would need to take more drastic action to bring inflation under control and are still pricing in a further 200 bps rate hike for the rest of 2022.

This, in turn, remained supportive of elevated US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying. In contrast, the BoJ has promised to conduct unlimited bond purchases to defend its “near-zero” target for 10-year yields and vowed to keep its existing ultra-loose policy settings.

The fundamental backdrop suggests that any meaningful pullback might still be seen as a buying opportunity and likely remain limited. Nevertheless, the USD/JPY pair is still on track to post gains for the ninth successive week and the highest weekly close since April 2002.

Technical levels to watch