USD/JPY retreats to 109.50 area on disappointing NFP report

• Nonfarm Payrolls in US increased by 145,000 in December.
• Annual wage inflation softened to 2.9% from 3.1%. 
• US Dollar Index erases early gains to turn flat below 97.50.

The USD/JPY pair lost its traction and fell to 109.50 area after the disappointing labour market data from the US weighed on the greenback. As of writing, the pair was up 0.06% on the day at 109.57.

USD weakens modestly

The US Bureau of Labor Statistics on Friday reported that Nonfarm Payrolls in the US increased by 145,000 in December to miss analysts' estimate of 164,000. Additionally, the wage inflation, as measured by the Average Hourly Earnings, dropped to 2.9% on a yearly basis from 3.1% to further weigh on the greenback.

The US Dollar Index, which touched its highest level in two weeks at 97.58 earlier in the session, turned flat near 97.40 with the initial market reaction.

Despite the uninspiring NFP data, the S&P 500 futures are still up 0.2% on the day to suggest that Wall Street is likely to open in the positive territory. If US stocks climb to fresh record highs on Friday, the pair is unlikely to extend its losses. On a weekly basis, the pair is still up more than 150 pips.

Technical levels to watch for