The USD/JPY pair has seen a second consecutive day of gains, bolstered by a variety of factors. A recent downward revision of Japan’s GDP figures, coupled with a positive risk sentiment in the markets, has weakened the safe-haven appeal of the Japanese Yen (JPY). Additionally, diminishing expectations for a 50 basis points (bps) rate cut by the Federal Reserve (Fed) in September have contributed to the strength of the US Dollar (USD) against the JPY.
Following a brief dip in the early Asian session to the 142.85 region, the USD/JPY pair has managed to trade with a slight upward bias below the mid-143.00s. Despite this positive movement, the pair remains close to a one-month low reached on the previous Friday.
The Japanese Yen has been under pressure due to recent data indicating a slower growth rate in the second quarter than initially reported. This could pose challenges to the Bank of Japan’s (BoJ) plans for future interest rate hikes. Furthermore, a generally optimistic market sentiment towards equities has reduced demand for safe-haven assets like the JPY, providing support to the USD/JPY pair.
The USD Index (DXY), which measures the USD against a basket of currencies, has reached a multi-day high as expectations for a larger rate cut by the Fed in September have waned. While a 25 bps rate cut is widely anticipated, the BoJ is anticipated to raise interest rates later this year, creating a divergence in monetary policies that could limit significant gains in the USD/JPY pair.
Investors are likely to adopt a cautious approach ahead of the release of US consumer inflation data on Wednesday. A sustained buying momentum is necessary to confirm a short-term bottom for the USD/JPY pair, especially in the absence of significant US economic data on Tuesday. Speeches by influential Federal Open Market Committee (FOMC) members during the US session could provide further direction for the currency pair.
Analysis:
The USD/JPY pair has seen a recent uptick driven by a combination of factors including a downward revision of Japan’s GDP figures, a positive market sentiment, and reduced expectations for a large Fed rate cut. These developments have weakened the JPY and strengthened the USD, leading to a modest increase in the currency pair. As investors await key economic data releases and central bank decisions, the near-term outlook for the USD/JPY pair remains uncertain, with potential for further volatility in the coming days.