- USD/JPY falls sharply to near 155.00 even though the US Dollar gains ground.
- The possibility of the Fed returning to policy normalization in September improves.
- Weak Japanese Yen boosts price pressures.
The USD/JPY pair extends its downside to 155.00 in Tuesday’s European session. The asset weakens as the Japanese Yen strengthens amid expected to that the Bank of Japan (BoJ) would tighten its policy further.
A weak Yen against other currencies has resulted in strong demand for Japanese exports, which is boosting price pressures. The scenario is expected to force BoJ policymakers to focus on tightening the monetary policy further either by raising interest rates or diminishing the bond-buying pace.
Meanwhile, a decent recovery in the US Dollar fails to uplift the USD/JPY pair. The US Dollar Index (DXY) discovers buying interest after declining to an almost two-month low near 104.00. The USD Index rebounds as market sentiment turns cautious, even though investors' confidence in the Federal Reserve (Fed) to begin reducing interest rates from the September meeting has improved.
The CME FedWatch tool shows that the probability of a rate cut in the September meeting has increased to 61% from 45.8% a week ago. The higher possibility of the Fed reducing interest rates in September is prompted by concerns over the United States (US) economic strength due to the central bank’s maintaining a restrictive framework for a longer period.
This week, the US Dollar is expected to remain highly volatile as the US ISM Services PMI and the Nonfarm Payrolls (NFP) reports are due to be published on Wednesday and Friday, respectively.
In today’s session, investors will focus on the JOLTS Job Openings data for April, which will be published at 14:00 GMT. US employers are estimated to have posted 8.34 million jobs, lower than the prior reading of 8.49 million.
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