USD/JPY steady below 130.50 after NFP report

  • USD/JPY struggled to preserve modest intraday gains to weekly high amid some USD selling.
  • The mixed US monthly employment report did little to impress USD bulls or provide any impetus.
  • Policy divergence between the Fed and the BoJ continued to lend support to the pair and helped limit losses.

The pair USD/JPY trimmed its modest intraday gains to the weekly high and pulled back closer to the daily low around the 130.15 region in reaction to the mixed monthly US employment report.

The NFP headline showed that the US economy added 428,000 new jobs in April compared to a forecast of 391,000. This, however, was offset by a slight downward revision to the March reading to 428,000 from 431,000 previously reported. Furthermore, the unemployment rate fell short of consensus estimates and remained stable at 3.6% during the reported month.

The report further revealed that the median hourly wage rose 0.3% mom in April and 5.5% yoy vs. 0.4% and 5.5% forecast, respectively. The data forced the US dollar to extend its modest pullback from a two-decade high. Apart from this, a weaker risk tone benefited the Japanese yen as a safe haven and acted as a headwind for the USD/JPY pair.

That said, a wide divergence in monetary policy adopted by the Fed and the Bank of Japan helped limit deeper losses, at least for the time being. Markets seem convinced that the Fed would need to take more drastic action to rein in inflation and are still pricing in a further 200bp rate hike for the rest of 2022.

This, in turn, continued to support elevated US Treasury yields, supporting the prospect of some USD buying. In contrast, the BoJ has promised unlimited bond purchases to defend its “near-zero” target for 10-year yields and pledged to maintain its existing ultra-loose policy setup.

The fundamental backdrop suggests that any significant pullback could still be seen as a buying opportunity and remain capped. However, the USD/JPY pair remains on track to post gains for the ninth week in a row and the highest weekly close since April 2002.

Technical levels

Source: Fx Street

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