USD/JPY Rebounds on Risk Appetite, Weak Japanese Wage Data

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The USD/JPY currency pair is experiencing a significant rebound on Wednesday, trading above 156.00 and up 0.8% compared to yesterday. This uptick comes after a recent decline in the US Dollar (USD) due to weak manufacturing PMI data.

Factors Driving the Rebound:

  • Improved Risk Sentiment: A general improvement in market sentiment is boosting the USD and weakening safe-haven currencies like the Japanese Yen (JPY).
  • Weak Japanese Wage Data: Data showing a 25th consecutive month of declining real wages in Japan is putting pressure on the JPY. This weakens the BoJ’s case for policy normalization.
  • Equity and Commodity Markets: Most European equity indexes and commodity prices (except non-precious metals and lumber) are rising, further contributing to the positive risk environment.

USD/JPY and Central Bank Policies:

  • BoJ Policy Meeting: Rumors of potential BoJ bond purchase reductions at their June meeting initially boosted the JPY (negative for USD/JPY) due to the anticipated increase in Japanese bond yields. However, the confirmation of these rumors remains uncertain.
  • Potential BoJ Intervention: Comments by Deputy Governor Himino regarding the negative impact of a weak JPY on the economy hint at the possibility of another BoJ intervention to support the JPY (negative for USD/JPY).
  • Conflicting Inflationary Pressures: Himino acknowledged that the weak Yen is inflating import prices, but this is not the type of inflation the BoJ desires. Ideally, they aim for inflation driven by higher wages, which would stimulate spending and economic growth.

US Jobs Data and Market Reaction:

  • ADP Payroll Figures: The ADP private sector payroll data for May came in weaker than expected (152K vs. 173K forecast), but the USD/JPY seems unfazed so far.
  • Upcoming US Data: The US ISM Services PMI and Nonfarm Payrolls data (Friday) are potential catalysts for the USD. Weak data could reverse the USD/JPY’s current surge.

The USD/JPY rebound is fueled by a combination of improved risk sentiment and weak Japanese wage data. The BoJ’s policy decisions and upcoming US economic data will be crucial in determining the sustainability of this uptrend. A reversal is possible if the US data disappoints.


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