The USD/JPY currency pair is trading robustly at around 145.35 during the early Asian session on Thursday. The Japanese Yen (JPY) has weakened following the release of Japan’s trade deficit data, which has buoyed the USD/JPY pair. Attention is now shifting towards key speeches by Bank of Japan (BoJ) Governor Kazuo Ueda and Federal Reserve Chair Jerome Powell at the Jackson Hole symposium on Friday, events anticipated to stir market volatility.
The minutes from the Federal Reserve’s July 30-31 meeting, released on Wednesday, reveal that most Fed officials are considering a rate cut at their September meeting, provided inflation trends remain subdued. The Fed has maintained its benchmark rate at 5.3% since July 2023. Markets are currently pricing in a September rate cut and expect a total reduction of one percentage point by year-end. This growing expectation of a Fed rate cut could weigh on the U.S. dollar and potentially limit further gains in the USD/JPY pair in the near term.
Conversely, many economists foresee a potential interest rate hike by the BoJ before the end of the year. According to a Reuters poll, the median forecast for the BoJ’s end-of-year rate stands at 0.50%, reflecting a 25 basis points increase. BoJ Governor Ueda’s forthcoming speech in parliament will be closely scrutinized; hawkish remarks could strengthen the JPY against the USD.
Additionally, data released Thursday by Jibun Bank and S&P Global showed Japan’s preliminary Manufacturing Purchasing Managers’ Index (PMI) increased to 49.5 in August from 49.1 in July, though it fell short of the market expectation of 49.8. Meanwhile, the Services PMI improved to 54.0 from 53.7 in the previous month.
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