• USD/JPY attracts some buyers during the Asian session, though the upside seems limited.
• The recent slump in US bond yields and Iran diplomacy hopes act as a headwind for the USD.
• A hawkish BoJ might support the JPY and cap spot prices ahead of the crucial US NFP report.

The USD/JPY pair stages a modest recovery from the 157.25 area, or fresh weekly touched during the Asian session on Friday, and climbs to the 158.00 neighborhood in the last hour. Spot prices now seem to have snapped a two-day losing streak, though the upside seems capped as traders might opt to wait for the release of the crucial US monthly employment details before placing fresh directional bets.

The popularly known US Nonfarm Payrolls (NFP) report will play a key role in influencing market expectations about the US Federal Reserve’s (Fed) policy path, which in turn will drive US Dollar (USD) demand. Heading into the key data risk, some repositioning trade turns out to be a key factor behind the USD/JPY pair’s intraday rebound, though the fundamental backdrop warrants some caution before placing aggressive bullish bets amid subdued US Dollar (USD) price action.

A decisive Democratic sweep in the US midterm elections lowered expectations that US President Donald Trump will resume military strikes against ? Iran, triggering a steep decline in crude oil prices and easing inflationary concerns. This forced traders to trim their bets for a Fed hike in December. Adding to this, a bruising rout on Wall Street forced investors to take refuge in safe-haven assets and dragged US bond yields to a near two-month low, capping the upside for the USD.

The Japanese Yen (JPY), on the other hand, might continue to draw support from hawkish Bank of Japan (BoJ) expectations. In fact, minutes of the September BoJ meeting showed on Thursday that policymakers concurred it was appropriate to keep increasing the policy interest rate and modify the level of monetary easing. This reaffirms market bets for an interest rate hike in December, which favors JPY bulls and might keep a lid on any meaningful recovery for the USD/JPY pair.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair maintains a mildly bearish near-term tone beneath the 200-day Simple Moving Average (SMA) at 158.66, suggesting that rallies are likely to face selling interest while the broader structure remains below this key average. Bulls would need to reclaim the said barrier to ease downside pressure and open the door for a more constructive bias.

On the downside, the daily swing low, around 157.25, could lend some support ahead of the 157.00 mark and the lower boundary of a short-term trading range, around the 156.60-156.50 region. A convincing break below will be seen as a fresh trigger for bearish traders and turn the USD/JPY pair vulnerable to decline further.