USD/JPY drops on reports about next BoJ governor, finds support ahead of mid-130.00s

• USD/JPY meets with a fresh supply on Friday and is weighed down by reviving demand for the JPY.
• A combination of factors boosts the safe-haven JPY and exerts some downward pressure on the pair.
• A modest USD strength lends some support and helps limit the downside, at least for the time being.

The USD/JPY pair struggles to capitalize on its modest gains recorded over the past two trading sessions and attracts fresh sellers following an early uptick to the 132.00 area on Friday. The intraday slide picks up pace during the early European session and drags spot prices to a fresh daily low, around the 130.60-130.55 region in the last hour.

Reports indicate that the Japanese government plans to appoint Kazuo Ueda as the Bank of Japan's (BoJ) next governor after Haruhiko Kuroda steps down. The report fuels speculations that high inflation may invite a more hawkish stance from the BoJ later this year. This, in turn, boosts the Japanese Yen and turns out to be a key factor behind the USD/JPY pair's latest leg down witnessed over the past hour or so.

Apart from this, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - also benefits the safe-haven JPY and exerts additional pressure on the USD/JPY pair. That said, a modest US Dollar strength, bolstered by the recent hawkish commentary by several FOMC members, lends some support to the major and helps limit the downside for the major, warranting caution for bears.

Hence, it will be prudent to wait for some follow-through selling below the weekly swing low, around the 130.35 area touched on Thursday, before positioning for any further depreciating move. Traders now look to the release of the Preliminary Michigan Consumer Sentiment Index from the US. This, along with Fed Governor Christopher Waller's speech and the broader risk sentiment, could provide a fresh impetus to the USD/JPY pair.

Technical levels to watch