USD/JPY rises further and approaches 148.00 as the US Dollar firms up

• The US Dollar rallies for the second consecutive day against the Yen, and approaches 148.00.

• Strong US data support the Fed's "wait and see" stance and underpin demand for the US Dollar.

• In Japan, the uncertain political context is likely to deter the BoJ from hiking interest rates further. 

The US Dollar extends its rally against the Japanese Yen for the second consecutive day on Friday: The pair has erased weekly losses and is nearing 148.00 from Thursday’s lows below 146.00 as US Treasury yields pick up with enthusiasm about this week’s trade deals fading.

Previous market optimism is turning into caution as the market shifts its focus to the monetary policy reports by the Bank of Japan and the US Federal Reserve due next week.

The Fed is widely expected to leave interest rates unchanged next week, more so after the strong US business activity and Jobless Claims figures released on Thursday. These data confirmed that the US economy remains resilient with a healthy labour market, which gives further leeway for the Fed to await further insight into the impact of tariffs before resuming rate cuts. The US Dollar has been trading higher following Thursday’s releases.

Also on Thursday, US President Trump paid an unusual visit to the Federal Reserve, only a few days ahead of their monetary policy meeting. Trump complained about the overcosts of the headquarters’ renovation and pressed for a less restrictive monetary policy, but his unusually soft comments after the visit eased investors’ concerns about the previous attacks on the central bank's independence.

In Japan, the somewhat softer Tokyo inflation figures seen on Friday and the trade deal would help the BoJ to continue hiking interest rates, but the bank is likely to stand pat next week and probably delay further monetary tightening until the political situation clarifies. This is likely to keep the Yen upside attempts subdued in the near-term.