Ella 
USD/JPY resumed its upward trend and recovered some of the previous day’s losses.
The policy divergence between the Bank of Japan and the Federal Reserve has become a key factor for USD/JPY.
Traders may avoid making aggressive bets, preferring to wait and see the U.S. non-farm payrolls.
In the Asian market on Friday, USD/JPY attracted some buying after a sharp correction from a four-week high around 144.00 the day before yesterday, and rebounded to around 143.00. However, the USD/JPY rally lacked bullish momentum as traders awaited the closely watched monthly U.S. non-farm payrolls data before placing bets in a new direction.
The sharp divergence between the Bank of Japan (BoJ) and the Federal Reserve (Fed) on monetary policy stances is seen as a tailwind for USD/JPY amid key event risks looming. Indeed, BOJ Governor Kazuo Ueda reiterated last week that the central bank will not hesitate to ease policy further and will need more time to achieve its 2% inflation target on a sustained basis. In addition, the Bank of Japan policy meeting minutes showed that members agreed to maintain the current loose monetary policy.
In contrast, Fed Chairman Jerome Powell noted that the economy still needs to slow and the labor market remains weak for inflation to return definitively to its 2% target. In addition, stronger upcoming U.S. macro data would suggest continued resilience in the labor market, which would keep the economy from recession, allowing the Fed to maintain higher interest rates for a longer period of time. Indeed, Wednesday’s U.S. ADP Employment Change showed that U.S. private sector employers added 324,000 jobs in July, compared to expectations for 189,000.
Meanwhile, data from the U.S. Department of Labor (DOL) on Thursday showed initial jobless claims in the U.S. recorded 227,000 for the week ended July 29, while layoffs fell to 11 in July amid a tight labor market. lows in months. This in turn has supported the recent rise in U.S. bond yields, which could continue to be a tailwind for the U.S. dollar (USD). Aside from this, the generally positive risk tone could weigh on the safe-haven yen and support USD/JPY.
However, traders seemed reluctant to make aggressive bets, looking ahead to the key U.S. non-farm payrolls report before deciding on the dollar’s next move. Therefore, it would be prudent to wait for strong follow-through buying before positioning for an extension of the recent rally from the 138.00 mark hit last Friday. That said, USD/JPY remains on track for a strong weekly gain and is on track for its strongest weekly close since June.
