USD/JPY bounces back from three-day losing streak

During Monday's Asian trading session, the USD/JPY pair ended a three-day decline amidst a flurry of economic data releases and central bank announcements.  Currently, the pair is trading near 153.55, marking a 0.35% increase.

Over the weekend, US Treasury Secretary Janet Yellen acknowledged the significant fluctuations in the value of the Japanese Yen last week. However, she refrained from providing any commentary on whether Japan took steps to support the currency.

"I'm not going to comment on whether they did or didn't intervene," she said.

For the past couple of years, her statements regarding potential Japanese interventions have fluctuated, frequently highlighting the importance of a consensus within the Group of Seven to uphold currency rates determined by the market.

However, Yellen stressed that interventions should aim to reduce market volatility rather than manipulate currency rates. Meanwhile, according to Bloomberg, Japan's Finance Minister Shunichi Suzuki did not confirm the interventions.

Increasing speculation surrounding a potential interest rate cut by the US Federal Reserve (Fed) in September, following the release of disappointing US employment figures, has prompted some downward pressure on the US Dollar. As indicated by the CME Fedwatch tool, traders are currently estimating an 85.5% probability of no change to the Fed funds rate in June, while the likelihood of a rate cut in September has surged to 90%.

Economic signals

The release of the US employment report hinted at a slowing economy. In April, Nonfarm Payrolls (NFP) rose by 175K, down from a revised 315K in March, missing the anticipated 243K. This marked the smallest increase since October 2023.

Additionally, the unemployment rate climbed to 3.9% in April, and average hourly earnings decreased by 3.9% compared to the previous year. Furthermore, the US ISM Services PMI dropped into contraction territory, falling from 51.4 in March to 49.4 in April, below the expected 52.0. Nevertheless, for the 27th consecutive month, the unemployment rate persisted below the 4% mark.

This means that the US labor market experienced a slower growth rate than anticipated in April, with only 175,000 new jobs added, well below the expected rate. Moreover, the rise in annual wages dropped below 4.0% for the first time in almost three years.

Meanwhile, indications suggest that the Federal Open Market Committee (FOMC) is not eager to shift course, with Governor Michelle Bowman anticipating that inflation will stay elevated for a considerable period. Her remarks at the Massachusetts Bankers Association Annual Convention imply that the Fed will persist in its data-driven strategy for monetary policy management.

She asserts her readiness to increase the federal funds rate in a future meeting if incoming data indicates a halt or reversal in inflation progress. The forthcoming speeches from Fed officials could influence USD/JPY as the central bank grapples with achieving the 2% inflation target.

I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed

Governor Bowman

Summing it up

The USD/JPY pair rebounded on a slight USD recovery while US Treasury Secretary Janet Yellen noted sharp movements in the Japanese currency's value.

The CME Fedwatch tool indicated growing expectations of a rate cut in September. Weaker employment data, a rise in the unemployment rate, and a decline in average hourly earnings contributed to this sentiment. The US ISM Services PMI also dropped, signaling a potential economic slowdown. This mixed outlook for the USD focused on future Fed actions and financial indicators for market direction.

In April, the US Nonfarm Payrolls (NFP) increased by 175,000 jobs, missing estimates and suggesting an economic slowdown. This led to speculation of a future reduction in the US Federal Interest Rate, pressuring the USD.

The intricate dance between economic indicators, central bank policies, and market sentiment highlights the ever-evolving landscape of the financial markets. Each nuanced shift carries substantial implications, shaping the trajectory of currencies and investor decisions.