- USD/JPY gains traction for the second day in a row and rises to a new weekly high on Friday.
- The monetary policy divergence between the Fed and the BoJ is seen as a key factor acting as a tailwind for the pair.
- A softer risk tone benefits the safe-haven JPY and caps gains ahead of the NFP.
The pair USD/JPY moves with a slight positive bias at the start of the European session on Friday, holding close to the 130.50 regionjust a few pips below the weekly high.
The pair has built on the previous day’s good bounce from near the weekly low and moves higher for the second day in a row on Friday. The wide divergence in monetary policy stance between the Fed and the Bank of Japan is considered a key factor that continues to drive the USD/JPY pair higher..
Fed Chairman Jerome Powell downplayed the possibility of an aggressive tightening path, though he said policymakers were ready to approve rate hikes of 50 basis points in the next meetings. In addition, the markets continue valuing a total of 200 basis points in rate hikes in the rest of 2022which was reinforced by high yields on US Treasury bonds.
On the other hand, the Japanese central bank has decided to maintain its ultra-loose policy setting and promised unlimited bond purchases to defend his “near-zero” target for 10-year yields. This, in turn, offers support to the USD/JPY pair, although a softer risk tone benefits the safe-haven JPY and caps gains.
Investors also seem reluctant, preferring to wait on the sidelines ahead of monthly US employment data, scheduled for release at the start of the American session. The NFP report, along with US bond yields, will weigh on the USD and provide a further boost to the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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