USD/JPY is unable to build on Tuesday’s advance above the 156.00 handle and retreats toward 155.75 in Wednesday’s Asian session. The pullback, however, lacks strong momentum, with traders cautious ahead of key US data releases later this week.
BoJ rate-hike bets support Yen
The Japanese Yen (JPY) continues to outperform as markets increase their bets on a Bank of Japan (BoJ) rate hike. BoJ Governor Kazuo Ueda said earlier this week that the likelihood of the bank achieving its economic and price projections is rising – the strongest signal yet that conditions for a policy shift are falling into place.
These comments have bolstered expectations of a near-term rate hike and are keeping the JPY supported, weighing on USD/JPY.
Fed cut expectations weaken USD
Meanwhile, the US Dollar (USD) remains pressured near its lowest level since November 14, as traders grow more confident that the Federal Reserve (Fed) will cut rates next week. The dovish Fed outlook stands in stark contrast to the BoJ’s increasingly hawkish stance, creating a widening policy divergence that continues to favor the lower-yielding JPY.
This divergence suggests that the broader directional bias for USD/JPY remains tilted to the downside.
Risk appetite, US data in focus
A generally constructive risk tone is preventing deeper USD/JPY losses for now, as stronger risk appetite limits safe-haven demand for the JPY. Market participants are also awaiting key US macro releases before committing to fresh positions.
Wednesday’s US calendar includes the ADP private-sector employment report and the ISM Services PMI, while the main event arrives Friday with the release of the Fed’s preferred inflation gauge – the Personal Consumption Expenditure (PCE) Price Index – which will be crucial for shaping near-term USD dynamics and the next move in USD/JPY.
