JPY/USD Continues to Fall Ahead of US Non-farm Payrolls Report

The Japanese yen remained on the defensive against the US dollar for a fourth consecutive day on Friday, with USD/JPY trading close to the psychological 145.00 mark in Asian markets, perhaps for more than two weeks. A strong earthquake that hit 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 in weakening the currency. While speculation of a January adjustment is fading, investors appear confident that the BOJ will exit its ultra-easy monetary policy environment in April, following annual wage talks in March, or later in 2024. This, along with broad equity market weakness, should help limit further losses in the safe-haven yen.

On the other hand, the U.S. dollar has managed to maintain its recent recovery from multi-month lows amid the diminishing likelihood of more aggressive policy easing from the Federal Reserve. U.S. macroeconomic data released on Thursday were better than expected, and investors on Wednesday lowered their expectations for the number of interest rate cuts in 2024 from six to four. This remains supportive of rising U.S. Treasury yields and serves as a tailwind for the dollar. However, USD bulls appear unwilling to bet heavily, preferring to wait for the release of U.S. non-farm payrolls (NFP) data, further limiting USD/JPY gains. However, the key jobs data is likely to guide the Fed’s policy decisions and provide some meaningful momentum for USD/JPY.

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