USD/JPY climbs to over one-week high, closer to mid-134.00s ahead of US NFP report

• USD/JPY scales higher for the fourth straight day and climbs to over a one-week high on Friday.
• Thursday’s upbeat US data, hawkish Fed expectations underpin the USD and remain supportive.
• Investors now look forward to the release of the US NFP report before placing directional bets.

The USD/JPY pair builds on this week's recovery move from mid-129.00s, or its lowest level since June 2022 and gains traction for the fourth successive day on Friday. The momentum lifts spot prices to over a one-week high, around the 134.40 area during the early part of the European session and is sponsored by a strong follow-through US Dollar buying.

Thursday's better-than-expected US macro data pointed to a resilient US labour market and could allow the Federal Reserve to stick to its aggressive rate hike path. Furthermore, Fed officials reiterated that they were still focused on bringing down inflation to the 2% target, which continues to act as a tailwind for the US Treasury bond yields and the greenback.

Apart from this, a generally positive tone around the equity markets, bolstered by the optimism over the easing of strict COVID-19 curbs in China, undermines the safe-haven Japanese Yen. This is seen as another factor lending support to the USD/JPY pair. The upside, however, seems limited amid reports that the Bank of Japan (BoJ) plans to raise its inflation forecasts.

According to Reuters, the upgrade would underscore the BoJ's conviction that robust domestic demand will keep inflation around the 2% target in coming years. This, in turn, fueled speculations that the central bank will phase out its ultra-lose policy settings when Governor Haruhiko Kuroda's second five-year term ends in April, warranting caution for bulls.

Traders might also refrain from placing aggressive bets and prefer to wait for the release of the closely-watched US monthly jobs data. The popularly known NFP report, due later during the early North American session, could influence the Fed's near-term policy outlook and drive the USD demand. This, in turn, should provide a fresh directional impetus to the USD/JPY pair.

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