JPY/USD Hits Two-week Low, Bears Gain Temporary Respite Ahead of U.S. Non-farm Payrolls Data

The Japanese yen (JPY) traded bearish against the US dollar for a fourth straight day on Friday, with USD/JPY hitting a two-week high near 144.85 during the Asian session. A strong earthquake in Japan on New Year’s Day has made it harder for the Bank of Japan (BoJ) to lift negative interest rates later this month, which in turn is seen as a key factor weakening the currency. While speculation about a policy adjustment by the BOJ in January is fading, investors still appear confident that the BOJ will abandon ultra-easy monetary policy in April, after annual wage talks in March, or later in 2024. This, coupled with broad equity weakness, helped limit further losses in the safe-haven yen.

On the other hand, the dollar managed to maintain its recent recovery from multi-month lows as the likelihood of more aggressive easing from the Federal Reserve diminished. Late Wednesday, investors lowered expectations for the number of rate cuts in 2024 to four from six, following better-than-expected U.S. labor market data on Thursday. This remains supportive of rising U.S. Treasury yields and serves as a “tailwind” for the dollar. However, dollar bulls appear unwilling to make aggressive bets ahead of the release of U.S. non-farm payrolls data (NFP), further limiting USD/JPY gains. However, the crucial jobs data is likely to guide the Fed’s policy decisions and provide some clear impetus on the final day of the week.

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