USD/JPY recovers few pips from multi-day low, still deep in the red below mid-142.00s

• USD/JPY stages an intraday bounce from a multi-day low touched earlier this Friday.
• The USD trims a part of heavy intraday losses and offers some support to the major.
• The risk-on impulse undermines the safe-haven JPY and contributes to the recovery.

The USD/JPY pair rebounds swiftly from a three-day low touched earlier this Friday, though struggles to capitalize on the attempted recovery move. The pair is currently trading around the 142.30-142.25 area, still down nearly 1.25% for the day.

The US dollar trims a part of its heavy intraday losses to a fresh monthly low and continues to draw support from rising bets for a more aggressive policy tightening by the Fed. Apart from this, the risk-on impulse - as depicted by a generally positive tone around the equity markets - undermines the safe-haven Japanese yen and assists the USD/JPY pair to attract some buying near the mid-141.00s.

The markets, however, already seem to have priced in a supersized 75 bps rate hike at the September FOMC meeting. Furthermore, speculations that authorities may soon step in to arrest the freefall in the JPY hold back traders from placing aggressive bets around the USD/JPY pair. This, in turn, might keep a lid on any meaningful upside for spot prices, at least for the time being.

That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and the US central bank warrants some caution before confirming that the USD/JPY pair has topped out. Hence, Friday's sharp downfall might still be categorized as a corrective pullback amid extremely overbought conditions, especially after a strong rally of nearly 30% since the beginning of the year.

There isn't any major market-moving economic data due for release from the US on Friday. Hence, the focus will remain on scheduled speeches by Fed officials, which will play a key role in influencing the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch