- USD/JPY represents an intraday bounce from the multi-day low reached earlier this Friday.
- The USD is paring some of the big intraday losses and offering some support to the major.
- The risk impulse is undermining the safe-haven JPY and contributing to the recovery.
The USD/JPY pair bounced back quickly from the three-day lows touched earlier this Friday, even as it looks to capitalize on an attempted recovery. The pair is currently trading around the 142.30-142.25 area, still down almost 1.25% on the day.
The U.S. dollar pared some of its heavy intraday losses to a fresh one-month low, continuing to draw support from rising bets for more aggressive Fed policy tightening. In addition, risk-on momentum – as illustrated by the generally positive tone in equity markets – is undermining the safe-haven Japanese Yen and helping the USD/JPY pair attract buying near the 141.00 mid-point.
However, markets appear to have already raised the rate by 75 basis points at the September FOMC meeting. Furthermore, speculation that the authorities may soon intervene to stop the JPY’s free fall is preventing traders from placing aggressive bets around the USD/JPY pair. This, in turn, could prevent any meaningful growth in spot prices, at least for the time being.
This means that the wide divergence in monetary policy stance adopted by the Bank of Japan and the US Federal Reserve calls for some caution before confirming that the USD/JPY pair has peaked. Thus, Friday’s sharp decline could still be classified as a corrective pullback in extremely overbought conditions, especially after a strong year-to-date rally of nearly 30%.
There is no major market movement economic data he is due to be released from the US on Friday. Therefore, the focus will be on the planned speeches of Fed officials, which will play a key role in influencing the dynamics of USD prices. Additionally, traders will take cues from broader market risk sentiment to seize near-term opportunities around USD/JPY pair.