On Friday, during the Asian session, the USD/JPY pair hit a new weekly low. Despite managing to recover a few pips in the last hour, it now trades just around the mid-145.00s, down less than 0.10% for the day.

The US Dollar (USD) recovers from an intraday fall and seeks to build on the previous day’s strong recovery from the crucial 200-day Simple Moving Average (SMA), which is also considered a major factor supporting the USD/JPY pair. However, given the uncertainty surrounding the Federal Reserve’s (Fed) path for future rate hikes, the USD bulls don’t seem eager to make risky wagers.

It is important to keep in mind that the strong US economy may be beginning to slow down, according to the US macro data issued earlier this week, including the ADP report and the second estimate of the US Q2 GDP print. This increased the likelihood that the Fed would have to moderate its hawkish position. Nevertheless, Thursday’s US PCE Price Index leaves room for one more 25 bps lift-off before the year is over.

Meanwhile, the likelihood of additional Fed policy tightening causes a slight recovery in US Treasury bond yields and supports the US dollar. To get some serious momentum later in the early North American session, traders, however, are hesitant and prefer to wait for the release of the closely-watched US monthly employment figures, commonly known as the NFP report.

The safe-haven Japanese Yen (JPY) may be undermined in the interim by a more dovish posture taken by the Bank of Japan (BoJ), together with weak Japanese macroeconomic data and a bullish outlook for US equities futures, limiting losses for the USD/JPY pair. The BoJ is the only central bank in the world that keeps interest rates negative, and it is expected that it will retain its ultra-accommodative policy settings.

Toyoaki Nakamura, a member of the BoJ board, added that it was premature to tighten monetary policy because recent inflation hikes were primarily caused by rising import costs rather than wage increases. This follows BoJ Governor Kazuo Ueda’s dovish comments from last week, in which he stated that the current situation will continue over the summer because underlying inflation is still somewhat below the 2% target.

According to the most recent poll conducted by Jibun Bank, the manufacturing sector in Japan continued to shrink in August. The final Manufacturing PMI score was 49.6, in fact. On top of that, the Finance Ministry of Japan announced that Capital Spending rose by 4.5% from a year earlier during the months of April and June, down from 11.0% the previous month and falling short of consensus expectations for a 5.4% growth.

Given the aforementioned fundamental context, the USD/JPY pair’s upward movement is likely to encounter the least amount of resistance. In order to confirm the construction of a near-term top around the 147.35-147.40 range, or the highest level since November 2022 reached earlier this week, it will be smart to wait for strong follow-through selling. Spot prices are still on course to end a winning streak of four weeks, though.

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