The USDJPY led losses in the dollar on Friday amid signals from Japan's Finance Minister about domestic asset investment and rising rate expectations. Markets await Canada's employment report for cues on the Bank of Canada's policy trajectory.
Market Overview
The USD traded mostly lower on Friday, with the USDJPY down 0.32% and leading declines among major currency pairs. The EURUSD held steady near flat, while the GBPUSD rose 0.10% against the greenback. The NZD gained 0.23%, buoyed by the Reserve Bank of New Zealand's recent rate hike. Meanwhile, crude oil prices edged higher, and gold slipped below $4,100 per ounce.
Drivers Behind the Yen's Strength
Japan's Finance Minister, Katayama, signaled plans to encourage domestic pension funds, including the Government Pension Investment Fund (GPIF), to boost allocations to Japanese assets. He also highlighted efforts to expand access to Japanese Government Bonds (JGBs) for households. These measures reinforced expectations of a gradual shift toward higher Japanese interest rates, making domestic assets more attractive and reducing capital outflows. The prospect of stronger local demand for JGBs and a more normalized monetary policy framework supported the yen's rally against the dollar.
Risk Sentiment and Geopolitical Tensions
A fragile calm returned to the Middle East after two days of U.S.-Iran strikes, though shipping through the Strait of Hormuz remained disrupted, adding pressure to energy markets. In Gaza, mourners gathered for an aid worker killed in an Israeli airstrike. The mixed geopolitical backdrop kept risk appetite cautious, with U.S. stock futures pointing to a lower open for Wall Street.
European Inflation Data
Germany's final CPI printed at -0.3% month-over-month, meeting forecasts and confirming easing inflation pressures. France's final CPI was revised to -0.3%, slightly below the -0.2% consensus. The data did little to shift expectations for the European Central Bank's policy path, as core inflation dynamics remain subdued.
Canadian Employment Report in Focus
Markets are eyeing Canada's employment data at 8:30 AM ET, with economists expecting 11.2K job gains after last month's robust 87.8K increase. The unemployment rate is projected to hold at 6.6%. Building permits data is also due, with forecasts pointing to a 1.0% monthly rise. The labor market figures will be critical for assessing the Bank of Canada's policy stance, particularly after recent hawkish signals.
Bond Yields and Commodities
U.S. Treasury yields edged higher, with the 10-year yield at 4.547% and the 30-year at 5.063%. Crude oil traded up $0.69 at $72.82 a barrel, while gold fell 0.51% to $4,102 an ounce. Silver dropped 0.92% to $59.41, and Bitcoin rose to $64,368.
Technical Outlook
From a technical perspective, the USDJPY's decline brought it closer to key support levels, with traders watching for potential follow-through. The EURUSD remains range-bound ahead of the Canadian jobs data, while the GBPUSD faces resistance near recent highs. Risk-sensitive pairs like AUDJPY and NZDJPY may see volatility if geopolitical tensions flare again.
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