USD/JPY holds steady above mid-130.00s, weekly high as focus remains on NFP

• USD/JPY gained traction for the second successive day and climbed to a fresh weekly high on Friday.
• The Fed-BoJ policy divergence was seen as a key factor that acted as a tailwind for spot prices.
• A softer risk tone undermined the safe-haven JPY and capped gains ahead of the key NFP report.

The USD/JPY pair traded with a mild positive bias through the early European session and was last seen hovering around mid-130.00s, just a few pips below the weekly high.

Spot prices built on the previous day's goodish rebound from the vicinity of the weekly low and scaled higher for the second successive day on Friday. A big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan was seen as a key factor that continued acting as a tailwind for the USD/JPY pair.

Fed Chair Jerome Powell downplayed the possibility of an aggressive tightening path, though said that policymakers were ready to approve 50 bps rate hikes at upcoming meetings. Moreover, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was reinforced by elevated US Treasury bond yields.

On the other hand, the Japanese central bank has vowed to keep its existing ultra-loose policy settings and promised to conduct unlimited bond purchases to defend its “near-zero” target for 10-year yields. This, in turn, offered support to the USD/JPY pair, though a softer risk tone underpinned the safe-haven JPY and capped gains.

Investors also seemed reluctant and preferred to wait on the sidelines ahead of the closely-watched US monthly jobs data, scheduled for release later during the early North American session. The popularly known NFP report, along with the US bond yields, will influence the USD and provide a fresh impetus to the USD/JPY pair.

Technical levels to watch