USD/JPY is consolidating below 147.00, awaiting US NFP report before next leg up

• USD/JPY is entering an upward consolidation phase near the August 19 high.
• Bulls seem reluctant to place new bets ahead of the release of the US NFP report.
• BoJ rate hike uncertainty and reduced bets for a 50 bps Fed rate cut provide support.

The USD/JPY pair is seen oscillating in a tight range during the Asian session on Friday and consolidating its weekly gains to the highest level since August 19 hit the previous day. Spot prices are currently trading below the 147.00 level, unchanged for the day, as traders opt to stay on the sidelines ahead of the release of closely watched monthly US employment details.

The well-known US Nonfarm Payrolls (NFP) report is expected to show the economy added 140,000 jobs in September, down slightly from 142,000 the previous month, and the unemployment rate held steady at 4.2%. Apart from this, average hourly earnings will be watched for clues about the size of the Federal Reserve’s (Fed) interest rate cut at its next policy meeting in November. This, in turn, will play a key role in driving demand for the US dollar (USD) and provide a significant boost to the USD/JPY pair.

Heading into the key data risk, investors trimmed their bets on more aggressive policy easing by the Fed amid signs of a still resilient US labor market. That pushed the USD index (DXY), which tracks the greenback against a basket of currencies, to a one-month high on Thursday. Additionally, subdued bets for more BoJ rate hikes in 2024, along with political uncertainty ahead of Japan’s snap election on October 27, could undermine the Japanese yen (JPY) and act as a tailwind for the USD/JPY pair .

Still, spot prices remain on track for strong gains for the second week in three, and barring any big downside surprises from US jobs data, the fundamentals support the outlook for further gains. That said, lingering geopolitical risks stemming from the ongoing conflicts in the Middle East and the risk of an all-out war in the region could benefit the safe-haven JPY. This could prove to be the only factor preventing bullish traders from placing aggressive bets around the USD/JPY pair.