The USD/JPY pair continues to trade in negative territory, hovering near 145.35 for the fourth consecutive day during the early Asian session on Wednesday. The decline is primarily driven by a softer U.S. Dollar (USD) and growing expectations of a dovish stance from Federal Reserve (Fed) Chair Jerome Powell at the upcoming Jackson Hole symposium.
Investors are increasingly confident that the Fed will cut interest rates this year, with expectations of three quarter-point cuts in September, November, and December. This sentiment has put selling pressure on the Greenback. Some officials have even suggested that a half-point rate cut in September could be possible if there are further signs of a slowdown in hiring.
Minneapolis Fed President Neel Kashkari expressed on Monday that he would be open to a rate cut in September, citing concerns over a potential weakening of the labor market. “The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” Kashkari noted.
In contrast, Fed Governor Michelle Bowman urged caution regarding any shift in policy, highlighting the ongoing risks of inflation. She warned that overreacting to individual data points could undermine the progress made so far.
Market participants will be closely watching the preliminary U.S. S&P Global PMI for August, set to be released on Thursday. A stronger-than-expected outcome could limit the downside for the USD. Additionally, all eyes will be on Fed Chair Powell’s speech at the Jackson Hole symposium on Friday, which could provide further direction for the pair.
On the Japanese Yen (JPY) side, recent data from Japan’s Ministry of Finance revealed a sharper-than-expected contraction in the country’s trade balance for July, driven by rising import prices. The trade balance fell to a deficit of 621.8 billion yen, a significant drop from the 224 billion yen surplus in June and far worse than the anticipated 330.7 billion yen deficit. While exports grew by 10.3% year-over-year in July, this was below the expected 11.4% growth, while imports surged by 16.6% year-over-year, exceeding the forecasted 14.9% increase.
Japan’s record trade deficit could exert additional pressure on the Yen, potentially limiting further declines in the USD/JPY pair in the near term. Traders will also be closely monitoring Japan’s National Consumer Price Index (CPI) for July, due on Friday, for further clues on the Yen’s trajectory.
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