USD/JPY hangs near daily low, just above mid-138.00s ahead of US Retail Sales

• USD/JPY witnessed some selling on Friday and moved away from a 24-year high touched on Thursday.
• The overnight less hawkish remarks by Fed officials, falling US bond yields weighed on the greenback.
• The Fed-BoJ policy divergence helped limit losses as the focus now shifts to the key US macro releases.

The USD/JPY pair edged lower on Friday and eased further from a 24-year high, around the 139.35-139.40 area touched the previous day. The pair remained depressed heading into the North American session and was last seen trading around the 138.70-138.65 region, just a few pips above the daily low.

The US dollar extended the overnight retracement slide from a two-decade high amid diminishing odds for a more aggressive policy tightening by the Federal Reserve. This, in turn, was seen as a key factor that exerted some downward pressure on the USD/JPY pair, though any meaningful corrective pullback still seems elusive.

Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard - two of the most hawkish FOMC members - pushed back against market expectations for a supersized, 100 bps rate hike in July. This led to a further decline in the US Treasury bond yields, which narrowed the US-Japan rate differential and underpinned the Japanese yen.

Despite the less hawkish remarks by Fed officials, a big divergence in the US central bank and Bank of Japan policy stance should cap gains for the JPY. Apart from this, a slight improvement in the global risk sentiment - as depicted by a positive tone around the equity markets - could further keep a lid on the safe-haven JPY.

The fundamental backdrop supports prospects for the emergence of some dip-buying around the USD/JPY pair. Traders, however, preferred to wait on the sidelines ahead of Friday's US macro releases - the monthly Retail Sales data, the Empire State Manufacturing Index, Industrial Production figures and Michigan Consumer Sentiment Index.

This, along with the US bond yields, should influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders would take cues from the broader market risk sentiment to grab short-term opportunities on the last day of the week. Nevertheless, the pair remains on track to end the week with strong gains.

Technical levels to watch