- USD/JPY witnesses fresh selling on Friday amid revival in demand for the JPY as a safe haven.
- The divergence between the monetary policy of the Fed and the Bank of Japan should limit the yen and give some support to the pair.
- Investors await US consumer inflation figures for further directional momentum.
The pair USD/JPY has come under renewed selling pressure on Friday and has pulled back to the low of the previous day during the European session. At time of writing, the pair is trading at 133.74, down -0.45% on the day.
Market sentiment remains fragile amid the concern that a more aggressive move by major central banks to normalize monetary policy in order to curb inflation would pose challenges to economic growth world. This was reflected in the generally weaker tone of equity markets, which fueled some safe-haven flows into the Japanese yen. This, coupled with extreme overbought conditions, led investors to take some profits after the recent strong bull run.
Nevertheless, the downward movement remains supported amid the divergence between the monetary policy adopted by the Bank of Japan (pessimistic) and the Fed (aggressive). Indeed, Bank of Japan Governor Haruhiko Kuroda reiterated on Wednesday that the central bank must continue to support economic activity by maintaining its current ultra-loose policy setting. In addition, the Bank of Japan has promised unlimited bond-buying operations to defend its near-zero target for 10-year yields.
By contrast, the benchmark 10-year US government bond yield remained above the 3.0% threshold amid concerns over persistently rising inflationary pressures. Investors are followed worrying that global supply chain disruption caused by the Russian-Ukrainian war will further drive up consumer prices. This could force the Federal Reserve to tighten monetary policy at a faster pace, which continues to support high US bond yields and act as a tailwind for the dollar.
Therefore, the market’s attention will be focused on the latest US consumer inflation figures, which will be published later at the beginning of the American session. The US CPI report will play a key role in influencing the Fed’s policy tightening path and short-term dollar price dynamics. This, in turn, should provide a further directional boost to the USD/JPY pair. However, the fundamental backdrop favors the bulls and supports the prospects for some buying in the pair.
USD/JPY technical levels
Source: Fx Street
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