USD/JPY bears stay in control and take the pair below the key 132.00 level

• USD/JPY is under pressure despite a softer US dollar. 
• Yen is picking up a safe haven bid as traders look ahead to key US data. 

At 131.95, USD/JPY is down 0.93% and sinking from a high of 133.55 while printing a low of 131.59, the lowest level since mid-June. The pair was down from a late 1998 peak of nearly 140 yen which it hit last month. 

The US dollar has been offered and weighed by the likelihood that the Federal Reserve will not raise interest rates as aggressively as some had expected. Since the meeting, growth numbers showed that the US economy contracted in Q2 for the second straight quarter, which is a textbook definition of a recession. Core PCE data for June and ECI data for Q2 showed price and wage inflation remain elevated and are a reminder that the Fed still has much to do.

The US dollar index (DXY) had been volatile after data showed US manufacturing activity slowed less than expected in July. This comes ahead of a key report for investors this week that will be Nonfarm Payrolls Friday. US employment likely continued to advance firmly in July, analysts at TD Securities said, but at a more moderate pace after four consecutive job gains at just below 400k in March-June. ''High-frequency data, including Homebase, still point to above-trend job creation. We also look for the UE rate to stay at 3.6% for a fifth straight month, and for wage growth to remain steady at 0.3% MoM (4.9% YoY).''

Meanwhile, JPY net short positions moved higher. In the spot market, the JPY has recovered some ground. ''Expectations of higher wage inflation are keeping alive speculation that the BoJ could adjust its YCC policy in the foreseeable future.  Safe haven demand has also been JP supportive,'' analysts at Rabobank said. Safe haven inflows have also lent the JPY support recently vs the greenback. Nevertheless, Japan’s current account position which has been undermined by expensive energy imports this year.  The current firmer position of the JPY shifts the lime-light from Bank of Japan policies.