- USD/JPY edged higher for the third successive day, though lacked any follow-through.
- Rallying US bond yields underpinned the USD and remained supportive of the move.
- COVID-19 jitters benefitted the safe-haven JPY and capped gains ahead of the US NFP.
The USD/JPY pair traded with a mild positive bias heading into the European session, albeit lacked any strong follow-through and remained below the key 110.00 psychological mark.
The pair built on this week's goodish rebound from the 108.70 area, or the lowest level since late May and edged higher for the third successive session on Friday. Bullish traders took cues from the ongoing move up in the US Treasury bond yields, which extended some support to the US dollar. In fact, the yield on the benchmark 10-year US government bond prolonged its strong momentum led by Fed Vice Chair Richard Clarida's hawkish comments and shot back closer to monthly tops.
On Wednesday, Clarida signalled a move to taper bond buying later this year or early 2022 depending on how the labor market fared in the next few months. Clarida further noted that conditions for an interest rate hike could be met in late 2022 and forced investors to bring forward the likely timing of a policy tightening. This, in turn, continued acting as a tailwind for the greenback and provided a modest lift to the USD/JPY pair, though COVID-19 jitters capped the upside.
Investors remain worried that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery. This was evident from the prevalent cautious mood around the equity markets, which benefitted the safe-haven Japanese yen and kept a lid on any runaway rally for the USD/JPY pair. Market participants also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the US monthly employment details.
The popularly know NFP report is scheduled for release later during the early North American session and is expected to show that the economy added 870K new jobs in July. The unemployment rate is expected to drop to 5.7% from 5.9% in June. Nevertheless, the data will play a key role in influencing market expectations about the next policy move by the Fed. This will drive the greenback in the near term and provide a fresh directional impetus to the USD/JPY pair.