USD/JPY refreshes multi-month low, bears flirt with 200-day SMA near mid-134.00s

• USD/JPY drops to a fresh multi-month low on Friday amid sustained USD selling bias.
• The Fed’s dovish pivot and sliding US bond yields continue to weigh on the greenback.
• Technical selling below the 135.00 mark also contributes to the downward trajectory.
• Oversold conditions on short-term charts could help limit losses ahead of the US NFP.

The USD/JPY pair remains under some selling pressure for the fifth straight day and drops to its lowest level since August 17 during the early part of the European session on Friday. The pair is currently trading just below mid-134.00s, down over 0.50% for the day, with bears awaiting a convincing break through the very important 200-day SMA.

The prevalent bearish sentiment surrounding the US Dollar - amid expectations that the Fed will soften its policy stance - is seen as a key factor dragging the USD/JPY pair lower. The prospects for a less aggressive policy tightening by the Fed were reaffirmed by dovish-sounding remarks by Fed Chair Jerome Powell and signs of easing inflationary pressures. This, in turn, keeps the US Treasury bond yields depressed and continues to weigh on the greenback.

In fact, the yield on the benchmark 10-year US government drops to a nearly two-month low, narrowing the US-Japan rate differential. Apart from this, the overnight hawkish-sounding comments by Bank of Japan (BoJ) board member Asahi Noguchi continue to underpin the Japanese Yen and exert additional downward pressure on the USD/JPY pair. Noguchi hinted at the possibility of the pre-emptive withdrawal of stimulus if inflation overshoots expectations.

Furthermore, the latest leg down could also be attributed to some technical selling below the 135.00 psychological mark. That said, oversold conditions on short-term charts could lend some support to the USD/JPY pair, at least for the time being. Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the closely-watched US jobs report, popularly known as NFP, due later during the early North American session.

Technical levels to watch