Japanese Yen slips from weekly high as USD stabilises ahead of US NFP report

• Buying interest emerges in USD/JPY during Asian trading, but further gains appear constrained.
• Falling US bond yields and hopes for diplomacy with Iran weigh on the USD.
• Hawkish BoJ expectations could underpin the JPY and limit the pair's advance before the pivotal US NFP release.

From a fresh weekly low near 157.25 reached during Friday's Asian session, USD/JPY has recovered modestly, approaching 158.00 over the past hour. The pair appears to have ended a two-day run of losses. However, further gains look limited, as traders may hold off on taking new directional positions until the crucial monthly US employment figures are released.

Expectations for the US Federal Reserve's (Fed) policy trajectory will be shaped by the closely watched US Nonfarm Payrolls (NFP) report, with implications for demand for the US Dollar (USD). Position adjustments ahead of this major release have been a key driver of the intraday rebound in USD/JPY. Nevertheless, with the USD trading in a subdued fashion, the fundamental backdrop calls for caution over taking aggressively bullish positions.

Following a decisive Democratic sweep in the US midterm elections, expectations that US President Donald Trump would resume military strikes against Iran diminished. Crude oil prices consequently fell sharply, easing concerns about inflation and prompting traders to scale back bets on a December Fed rate rise. Meanwhile, a heavy sell-off on Wall Street drove investors towards safe-haven assets. US bond yields dropped to their lowest level in nearly two months, limiting the dollar's scope to advance.

By contrast, expectations of a hawkish Bank of Japan (BoJ) could continue to underpin the Japanese Yen (JPY). Minutes from the BoJ's September meeting, published on Thursday, revealed agreement among policymakers that further increases in the policy interest rate and adjustments to the degree of monetary easing remained appropriate. That reinforced market expectations of a December rate rise, favouring JPY bulls and potentially restricting any substantial recovery in USD/JPY.

USD/JPY daily price chart

Technical Outlook Remains Mildly Bearish

Trading below the 200-day Simple Moving Average (SMA) at 158.66 leaves USD/JPY with a mildly bearish near-term bias. As long as the broader price structure remains beneath this important average, advances are likely to attract sellers. A move back above that threshold would be needed to relieve downward pressure and establish a more constructive outlook.

Initial support could emerge at the day's swing low near 157.25, followed by 157.00 and the bottom of the short-term trading range around 156.60-156.50. A decisive breach of that range floor would provide a fresh bearish trigger, leaving USD/JPY exposed to further losses.

(The technical analysis of this story was written with the help of an AI tool. Know more.)