No significant events are expected today.

The USD/JPY pair weakened further below the mid-141.00 level during the Asian session on Friday and is now closer to the YTD low, reached earlier this week. Furthermore, the fundamental backdrop appears to favor bearish traders and supports the prospects of the ongoing downtrend, which has been in place for the past two months.

The US Dollar (USD) dropped to a fresh weekly low amid rising bets for more aggressive policy easing by the Federal Reserve (Fed) next week, bolstered by the release of a softer-than-expected US Producer Price Index (PPI) on Wednesday. In fact, markets are now pricing in more than a 40% chance that the US central bank will lower borrowing costs by 50 basis points at the conclusion of the September meeting. This is keeping US Treasury yields near their 2024 low, putting pressure on the dollar and driving the USD/JPY pair lower.

On the other hand, the Japanese Yen (JPY) continues to gain support from hawkish signals from the Bank of Japan (BoJ), indicating that it will further raise interest rates if economic forecasts align. Moreover, BoJ board member Naoki Tamura stated on Thursday that the path toward ending the loose policy is still very long. This creates a significant divergence from the dovish expectations for the Fed, which, in turn, encourages further buying of the Japanese Yen (JPY) and reinforces the bearish tone for the USD/JPY pair.

The aforementioned fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside, although traders may prefer to move cautiously ahead of key central bank events, which could take place next week. The Fed is expected to announce its decision at the end of its two-day meeting next Wednesday, followed by an update from the Bank of Japan on Friday, which will determine the next directional move for the USD/JPY pair. Nevertheless, the pair remains on track to finish its second consecutive week in the red.

Recommendations: Predominantly trade Sell orders from the current price levels.