USD/JPY slips below mid-141.00s, looks vulnerable near YTD low amid USD bear

• USD/JPY is trading in a negative bias for the fourth consecutive day and is near YTD lows.
• Divergent Fed-BoJ policy expectations are proving to be a key factor weighing on the pair.
• Investors are now looking forward to key risks from next week’s central bank events for further impetus.

The USD/JPY pair weakened further below the mid-141.00s during the Asian session on Friday and has now approached the YTD low reached earlier this week. Moreover, the fundamental backdrop appears strongly tilted in favor of bear traders and supports the prospects for an extension of a well-established downtrend seen over the past two months or so.

The US dollar (USD) fell to a fresh weekly low on growing bets for more aggressive policy easing by the Federal Reserve (Fed) next week, supported by the release of a weaker US producer price index (PPI) on Wednesday than expected. ) print. In fact, markets are now pricing in a more than 40 percent chance that the U.S. central bank will cut borrowing costs by 50 basis points at the end of its September meeting. This keeps US Treasury yields down near 2024 lows, which is seen weighing on the dollar and pulling the USD/JPY pair lower.

The Japanese yen (JPY), on the other hand, continues to draw support from the Bank of Japan’s (BoJ) driver signals indicating that it will raise interest rates further if the economic outlook aligns with forecasts. In fact, BoJ board member Naoki Tamura said on Thursday that the path to ending the easy policy is still very long. This marks a big divergence from the accommodative expectations of the Fed, which in turn prompts a further recovery in Japanese yen (JPY) trading and contributes to the tone offered around the USD/JPY pair.

The fundamental backdrop mentioned above suggests that the path of least resistance for spot prices remains to the downside, although traders may prefer to sideline ahead of key risks from central bank events next week. The Fed is scheduled to announce its decision at the end of a two-day meeting next Wednesday. This will be followed by the BoJ’s policy update on Friday, which will determine the next step of a directional move for the USD/JPY pair. However, the pair remains on course to finish deep in the red for the second straight week.