The yen's price against the U.S. dollar (USD/JPY) reached a new weekly low during the Asian session on Friday, although it managed to strengthen a few points within the last hour and is currently trading just below the mid-145 level, experiencing a decline of less than 0.10% today.

The U.S. dollar (USD) managed to reverse intraday losses and is attempting to continue the positive movement that began the day before from the crucial 200-day Simple Moving Average (SMA). This SMA is considered a key factor providing support to the yen's price. However, the USD's appreciation seems hesitant to take aggressive positions due to uncertainty regarding the Federal Reserve's future interest rate policy.

It is important to note that U.S. macroeconomic data released earlier this week, such as the ADP report and Q2 GDP estimates, showed signs of an economic slowdown in the U.S. This has sparked speculation that the Federal Reserve may need to ease its tight policies. Nevertheless, on Thursday, the U.S. PCE Price Index opened up the possibility for another 25 bps rate hike by the end of this year.

Meanwhile, expectations of further tightening by the Fed have provided some support to U.S. Treasury yields and boosted the U.S. dollar. However, traders seem reluctant to take action and prefer to wait for the release of the highly anticipated U.S. monthly employment data, the famous NFP report, for significant momentum at the beginning of the North American trading session.

Additionally, the more "dovish" policy adopted by the Bank of Japan (BoJ), along with disappointing Japanese economic data and positive sentiment toward U.S. stock futures, is likely to weaken the Japanese yen (JPY) as a "safe-haven" currency and limit the USD/JPY pair's decline. Notably, the BoJ is the only central bank in the world that still maintains negative interest rates and is expected to continue its highly accommodative monetary policy.

Moreover, one BoJ board member, Toyoaki Nakamura, stated on Thursday that it is still too early to take tightening measures in monetary policy, as recent inflation increases are largely driven by higher import costs rather than wage increases.

This statement follows the "dovish" stance expressed by BoJ Governor Kazuo Ueda last week, stating that inflation levels are still slightly below the 2% target and that current policies will remain in place until next summer.

In terms of economic data, the latest survey results from Jibun Bank indicate that Japan's manufacturing sector continues to contract in August, with the Manufacturing PMI Index ending at 49.6. Additionally, the Japanese Ministry of Finance reported that capital spending increased by 4.5% year-on-year during the April-June period, down from the previous 11.0% and missing the consensus estimate of a 5.4% increase.

With the aforementioned fundamental backdrop, the path of least resistance for the yen appears to be towards further strengthening. Therefore, it would be prudent to wait for follow-up from strong selling pressure before confirming the formation of a short-term peak around the 147.35-147.40 range, or the highest level reached since November 2022 earlier this week. However, spot prices are still in a position to end a four-week winning streak.

Warning!

This analysis is based on a fundamental and technical perspective from trusted sources and does not constitute advice or an invitation. Always remember that this content aims to enrich readers' information. Always conduct your own research regarding other forex information as a reference for your trading.

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