USD/JPY consolidates in a narrow band around 145.00, NFP eyes for further momentum

  • USD/JPY is struggling to gain ground and is swinging in a range on Friday.
  • Speculation that the Japanese authorities could intervene in the markets is leveling off on the upside.
  • The underlying USD bullish sentiment acts as a tailwind ahead of the US NFP report.

USD/JPY is failing to capitalize on its gains recorded over the past two trading sessions and is hovering in a narrow range until the first European session on Friday. The pair is currently placed around the psychological level of 145.00 and remains at the mercy of the price momentum of the US Dollar.

Growing acceptance that the Fed will stick to a more aggressive rate hike cycle to tame inflation continues to act as a tailwind for the greenback and USD/JPY. In fact, markets priced in another 75 basis point Fed rate hike in November. The bets have been reaffirmed by recent hawkish comments from several Fed officials, reiterating that the US central bank remains committed to controlling inflation.

Moreover, the widening of the rate differential between the United States and Japan would weigh on the Japanese yen and provide support for the USD/JPY pair. Prospects for faster Fed policy tightening continue to support high US Treasury yields. By contrast, the Bank of Japan remains committed to keeping JGB yields low. That said, intervention fears prevent the bulls from placing new bets and capping the gains of the major.

Japanese Prime Minister Kishida spoke about the weakness of the national currency and said that the recent sharp and unilateral movements of the yen were not desirable. Kishida added that last month’s intervention reflected the view that we cannot overlook speculative currency movements. It comes after Japanese Finance Minister Shunichi Suzuki said on Monday that the government was ready to intervene in the markets to avoid deeper losses in the JPY.

Market participants also seem reluctant and prefer to sideline ahead of crucial US monthly employment details, which are due to be released later in the first North American session. The well-known NFP report will influence Fed rate hike expectations. This, in turn, will play a key role in determining the short-term path of the dollar and provide further directional momentum for the USD/JPY pair.

Technical levels to watch

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