On Friday, USD/JPY plunges to a new multi-month low amid persistent USD selling bias. The US dollar is still under pressure due to the Fed’s dovish shift and falling US bond rates. The downward trend is further aided by technical selling below the 135.00 level. Before the US NFP, oversold circumstances on short-term charts may help minimize losses.
In the early hours of the European session on Friday, the USD/JPY pair, which has been under considerable selling pressure for five days running, reaches its lowest point since August 17. The pair is now down more than 0.50% daily and trading slightly around the mid-134.00s. Bears are watching for a decisive break of the crucial 200-day SMA.
The USD/JPY pair is falling due to the solid adverse sentiment around the US Dollar, which is present amid anticipation that the Fed may ease its stance on monetary policy. Dovish-sounding comments by Fed Chair Jerome Powell and indications of diminishing inflationary pressures reinforced the likelihood of the Fed’s less aggressive tightening of policy. The US dollar continues to suffer, and US Treasury bond rates remain low.
The yield on the standard 10-year US government bond falls to a nearly two-month low, reducing the difference in interest rates between the US and Japan. In addition, the Bank of Japan (BoJ) board member Asahi Noguchi’s overnight hawkish-sounding remarks have continued to support the Japanese Yen and put more downward pressure on the USD/JPY pair. Noguchi suggested that if inflation exceeds expectations, the stimulus may be prematurely withdrawn.
Furthermore, some technical selling below the psychological level of 135.00 may have contributed to the most recent run down. Nevertheless, oversold circumstances on short-term charts may provide temporary support for the USD/JPY pair. Ahead of the much anticipated US employment report, often referred to as the NFP, which is coming later during the early North American session, traders may also choose to avoid making risky bets and instead stay on the sidelines.