- USD / JPY extends the positive move from the previous day and gains continuation traction on Friday.
- The widening of the US-Japan bond spread and risk appetite weigh on the safe-haven JPY.
- Upbeat expectations from the Fed continue to prop up the USD and support the pair’s upward move ahead of the NFP.
The pair USD/JPY has risen to highs of more than a week at the start of the European session on Friday, with the bulls now waiting for a po move above the 112.00 level.
A combination of factors has helped the USD / JPY pair to take advantage of the positive move from the previous day and gain some continuation traction for the second day in a row on Friday. Prevailing risk appetite has continued to weigh on the safe-haven Japanese yen, which has been further hampered by the widening of the government bond yield spread between the United States and Japan.
Investors have held a possible agreement to avoid a suspension of payments of the American public debt, which has been evident by a classic movement of appetite for risk in the equity markets. In fact, the Senate voted 50-48 to extend the debt ceiling until early December. The bill will now go to the House of Representatives for approval before it can be sent to President Joe Biden for his signature.
In the meantime, US Treasury yields have extended their strong rally that has been underway since late September, when the Fed signaled that it would begin to reduce its bond purchases at the end of 2021. On the other hand, the yield on the Japanese government 10-year bond remained close to zero due to the policy of controlling the yield curve of the Bank of Japan.
Markets also appear to have started to discount in price the possibility of a Fed rate hike in 2022 amid concerns that the recent surge in oil and energy prices will fuel inflation. The combination of factors has continued to act as a tailwind for the US dollar, which has been seen as another factor that has contributed to the buying tone around the USD / JPY.
Market participants are now awaiting the release of the US monthly NFP jobs report, which will be released later at the start of the American session. The data will influence market expectations about the likely timing of the Fed’s downsizing plan. This will play a key role in influencing the USD in the near term and could generate further directional momentum to the USD / JPY pair.
USD / JPY technical levels
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