USD/JPY consolidates in a range below mid-150.00s, looks to US NFP for fresh impetus

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• USD/JPY remains confined in a narrow range through the Asian session on Friday.
• Traders opt to wait on the sidelines ahead of the crucial US monthly jobs report.
• The divergent Fed-BoJ policy outlook continues to act as a tailwind for the major.

The USD/JPY pair struggles to build on the overnight modest bounce from the 149.85-149.80 region and oscillates in a narrow trading band during the Asian session on Friday. Spot prices currently trade just below mid-150.00s, nearly unchanged for the day, as traders seem reluctant to place aggressive bets amid the uncertainty over the Federal Reserve’s (Fed) rate-hike path.

The US central bank decided to keep the key overnight interest rates unchanged at a 22-year high for the second time in a row, though acknowledged the need for another rate hike on the back of the US economy’s unexpected resilience. However, Fed Chair Jerome Powell, in the post-meeting press conference, noted that financial conditions may be tight enough already to control inflation. This, in turn, fueled speculations that the Fed was done raising rates and could start cutting rates by June next year. The outlook, meanwhile, led to the recent sharp pullback in the  US Treasury bond yields, which keeps the US Dollar (USD) bulls on the defensive and acts as a headwind for the USD/JPY pair.

Apart from this, the Japanese government’s jawboning to combat a sustained depreciation in the domestic currency further contributes to capping spot prices. Furthermore, market participants opt to remain on the sidelines and wait for the release of the closely-watched US monthly employment details, or the NFP report, due later during the early North American session. The downside for the USD/JPY, however, seems limited in the wake of a dovish stance adopted by the Bank of Japan (BoJ). In fact, the BoJ pledged to continue with its extremely accommodative policy to support the domestic economy and until sustained achievement of the 2% price target comes into sight.

Moreover, the BoJ’s minor change to its yield curve control (YCC) policy pointed to a slow move towards exiting the decade-long accommodative regime. This, along with the prevalent risk-on mood, could undermine the safe-haven Japanese Yen (JPY) and lend support to the USD/JPY pair. Nevertheless, spot prices still seem poised to register modest weekly gains and the aforementioned fundamental backdrop warrants some caution for aggressive bearish traders. Hence, it will be prudent to wait for strong follow-through selling before confirming that the pair has formed a near-term top around the 151.70 region, or the highest level since October 2022 touched on Tuesday.

Technical levels to watch