Key events today:

12:30 UTC: USD – Unemployment Rate.

The USD/JPY pair is fluctuating in a narrow range during the Asian session on Friday, consolidating its weekly gains to the highest level since August 19, reached the previous day. Spot prices are currently trading below the 147.00 mark, unchanged for the day, as traders prefer to stay on the sidelines ahead of the release of important monthly U.S. employment data.

The U.S. Non-Farm Payroll (NFP) report is expected to show that 140,000 jobs were added in September, slightly lower than the 142,000 in the previous month, with the unemployment rate remaining steady at 4.2%. Additionally, attention will be paid to average hourly earnings to gauge the size of the Federal Reserve’s interest rate cut at its next meeting in November. This, in turn, will play a key role in driving demand for the U.S. dollar (USD) and provide significant momentum for the USD/JPY pair.

Ahead of the key data release, investors have scaled back expectations for more aggressive Federal Reserve easing amid signs of a still-resilient U.S. labor market. This led the U.S. Dollar Index (DXY), which tracks the dollar against a basket of currencies, to hit a one-month high on Thursday. Moreover, reduced bets on a Bank of Japan rate hike in 2024, along with political uncertainty ahead of Japan’s snap elections on October 27, may undermine the Japanese yen (JPY) and serve as a tailwind for the USD/JPY pair.

Nevertheless, spot prices have been rising for the second week out of the last three, and unless the U.S. employment data delivers any negative surprises, the fundamental backdrop supports further growth prospects. However, ongoing geopolitical risks related to conflicts in the Middle East and the threat of a full-scale war in the region may favor yen appreciation. This could be the only factor holding back bullish traders from making aggressive bets on the USD/JPY pair.

Recommendations: Trade predominantly with Buy orders from the current price level.