USD/JPY sits near mid-136.00s, over one-week high; lacks follow-through

• USD/JPY shot to over a one-week high in reaction to the upbeat NFP report for June.
• The widening US-Japan rate differential weighed on the JPY and remained supportive.
• The fundamental backdrop supports prospects for a move towards the 137.00 mark.

The USD/JPY pair recovered its early lost ground to the 135.30 area and turned positive for the fifth successive day on Friday. The intraday uptick picked up pace during the early North American session and pushed spot prices to over a one-week high, around the 136.55 region.

The US dollar stood tall near a two-decade high after the US monthly jobs report that the US economy added 372K jobs in June, far more than the 268K anticipated. The upbeat headline NFP was accompanied by a steady Unemployment rate, which came in at 3.6% for the reported month. Adding to this, Atlanta Fed President Raphael Bostic backed the case for a 75 bps rate hike move at the upcoming FOMC meeting in July.

Speaking to CNBC, Bostic - one of the most dovish policymakers - said that the Fed needs to move aggressively and that the core of the US economy is still strong. This, in turn, pushed the US Treasury bond yields and further widened the US-Japan rate differential. Apart from this, the divergent policy stance adopted by the Fed and Bank of Japan undermined the Japanese yen, which, in turn, lifted the USD/JPY pair.

The USD bulls, however, seemed reluctant to place fresh bets amid slightly overstretched conditions, especially after the recent strong bullish runup. This was seen as the only factor that kept a lid on any meaningful upside for the USD/JPY pair, at least for the time being. That said, the fundamental backdrop supports prospects for a move back towards testing a 24-year high, around the 137.00 mark set in June.

Technical levels to watch