• USD/JPY attracts some buyers on Friday as the USD gains some traction ahead of the US NFP report.
• Receding September Fed rate hike bets and soft US bond yields might keep a lid on further USD gains.
• A more hawkish BoJ repricing and a suspected intervention could support the JPY, capping spot prices.

The USD/JPY pair stages a modest intraday recovery from the vicinity of the August monthly low and climbs back to the 156.50 area during the Asian session on Friday. Spot prices, for now, seem to have snapped a two-day losing streak, though the upside potential seems limited.

The US Dollar (USD) attracts some buyers amid some repositioning trade ahead of the crucial US Nonfarm Payrolls (NFP) report and turns out to be a key factor that prompts some short-covering around the USD/JPY pair. The closely watched US jobs data will be looked upon for cues about the Federal Reserve’s (Fed) policy path, which will drive the USD and provide some impetus to the currency pair.

Heading into the key data, traders pared their bets for a rate hike in September after Fed Governor Christopher Waller offered optimism that inflation is showing some signs of slowing and backed the case to keep policy unchanged. Investors responded by pushing US bond yields lower, which, in turn, might keep a lid on any meaningful upside for the buck and the USD/JPY pair, warranting caution for bulls.

Meanwhile, a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations, along with a suspected intervention, might continue to underpin the Japanese Yen (JPY). In fact, traders now seem to have fully priced in a 25 basis point (bps) rate hike at the September 17–18 BoJ meeting and see the possibility of a follow-up move in December. This might contribute to capping the USD/JPY pair.

Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a base around the 155.30-155.20 region and positioning for any further gains. Nevertheless, the USD/JPY pair remains on track to register heavy weekly losses. Moreover, the fundamental backdrop favors bearish traders and backs the case for the emergence of fresh selling at higher levels.

USD/JPY 1-hour chart

Technical Analysis

The USD/JPY pair maintains a capped tone near the 23.6% Fibonacci retracement level of the steep weekly decline. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is turning positive, and the Relative Strength Index (RSI) is rising toward the mid-40s, only hinting at easing downside pressure rather than a sustained bullish reversal. That said, a break below the main structural support near 155.30-155.20 is needed to open the door for deeper losses.