The Bank of Japan has indicated that it may continue to raise rates | 02 August 2024

Event to pay attention to today:

15:30 GMT+3. USD - Non-Farm Employment Change

USDJPY:

The USD/JPY pair is trading at approximately 149.40 during the Asian session on Friday, having rebounded from the four-month low of 148.50 recorded on Thursday. The increase in the USD/JPY pair can be attributed to the strength of the US dollar (USD), which can be attributed to a strengthening risk-off sentiment following the release of recent industrial production and employment data that raised concerns about the health of the US economy.

The US dollar (USD) is receiving support as markets remain in a fragile equilibrium. However, the economic slowdown is leading to growing expectations of a rate cut by the Federal Reserve. CME's FedWatch tool indicates that traders are fully aware of the possibility of a 25-basis-point rate cut on 18 September. Furthermore, market participants are awaiting the release of US non-farm payroll employment and average hourly earnings data for July, due later in the North American session.

The Purchasing Managers' Index (PMI) for the US manufacturing sector, as reported by the ISM, reached an eight-month low of 46.8 in July, down from 48.5 in the previous month and below the projected figure of 48.8. The number of initial jobless claims in the US for the week ending 26 July increased to 249,000 from 235,000 the previous week, exceeding the forecasted rise to 236,000.

The Japanese Yen (JPY) received a boost following the Bank of Japan's (BoJ) decision to raise the discount rate to a 16-year high of 0.25%. The move, along with the BoJ's indication that further rate hikes may be necessary to meet economic demands, could result in a JPY appreciation. Market expectations now factor in two additional rate hikes before the end of the fiscal year in March 2025, with the next hike expected in December. This outlook could limit the potential for the USD/JPY pair to appreciate further.

Trade recommendation: Trading mainly by Sell orders from the current price level.

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