USD/JPY has bounced back from a four-month low of 148.50, reaching 149.40 during the Asian session on Friday. This recovery comes as the US Dollar strengthens amidst a risk-off sentiment following disappointing manufacturing and employment data, causing concerns about the US economy.
The recent drop in the US ISM Manufacturing PMI to an eight-month low of 46.8 in July, coupled with an increase in initial jobless claims, has heightened expectations for a Federal Reserve rate cut. Traders are now fully pricing in a 25-basis point cut in September, with upcoming data releases for July Nonfarm Payrolls and Average Hourly Earnings closely watched.
Meanwhile, the Japanese Yen has found support after the Bank of Japan raised its policy rate to 0.25%, signaling potential further rate hikes if necessary. Market expectations anticipate two more increases by March 2025, with the next hike expected in December. This outlook could limit the upside potential for USD/JPY.
Analysis:
The fluctuating USD/JPY exchange rate reflects the impact of economic data releases on currency valuations. A weakening US economy, indicated by low PMI and jobless claims figures, contrasts with the BoJ’s hawkish stance on rate hikes, affecting the relative strength of the US Dollar and Japanese Yen. Traders and investors should monitor upcoming data releases and central bank decisions to assess potential risks and opportunities in the forex market.