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Japanese Yen stays under pressure as resilient US economy supports the Dollar

  • USD/JPY trades around 163.70, marking a modest pullback on Friday after reaching a fresh near 40-year high.
  • Stronger US PMI data highlights the resilience of the US economy and supports expectations for a hawkish Fed.
  • The wide US-Japan interest rate differential continues to fuel carry trades, limiting the Japanese Yen's recovery despite intervention risks.

USD/JPY edges lower on Friday, trading around 163.70, down 0.09% on the day at the time of writing, after hitting a fresh near 40-year high on Thursday. Investors are trimming some long positions amid the risk of intervention from Japanese authorities in the foreign exchange market, though the broader fundamental backdrop continues to favor the US Dollar (USD) against the Japanese Yen (JPY).

The divergence in monetary policy between the Federal Reserve (Fed) and the Bank of Japan (BoJ) remains the primary driver of the pair. Although the Japanese central bank has raised interest rates to 1%, borrowing costs in Japan remain significantly lower than in other major economies, keeping carry trades attractive and weighing on the JPY.

The US Dollar is also supported by the latest macroeconomic data. The preliminary United States (US) S&P Global Composite Purchasing Managers Index (PMI) rose to 53.6 in July from 51.9 in June, pointing to an acceleration in private sector activity. The Services PMI improved to 53.6, while the Manufacturing PMI eased slightly to 53.8. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the survey is consistent with annualized Gross Domestic Product (GDP) growth of around 2% in the third quarter, although supply chain disruptions and price pressures continue to intensify.

These data reinforce the resilience of the US economy and support expectations that the Fed could maintain a restrictive monetary policy for longer. Investors are now turning their attention to next week's Fed policy meeting for further guidance on the outlook for interest rates.

Meanwhile, the Japanese Yen continues to struggle amid concerns over rising energy costs, as escalating tensions between the US and Iran fuel fears of further disruptions to global Oil supplies. Repeated verbal intervention warnings from Japanese officials have so far failed to halt the currency's decline.

Data released earlier on Friday showed that Japan's National Consumer Price Index (CPI) accelerated to 1.7% YoY in June from 1.5% in May. According to Reuters, citing three sources, the BoJ is expected to leave interest rates unchanged at next week's meeting while warning that inflation could exceed its 2% target, although policymakers believe the immediate risk of an Oil-driven inflation shock has eased.

Japanese Yen Price Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.14%-0.22%-0.10%-0.03%-0.36%-0.48%-0.02%
EUR0.14%-0.12%0.02%0.06%-0.26%-0.41%0.06%
GBP0.22%0.12%0.13%0.19%-0.15%-0.27%0.18%
JPY0.10%-0.02%-0.13%0.07%-0.28%-0.40%0.04%
CAD0.03%-0.06%-0.19%-0.07%-0.35%-0.48%-0.02%
AUD0.36%0.26%0.15%0.28%0.35%-0.12%0.32%
NZD0.48%0.41%0.27%0.40%0.48%0.12%0.45%
CHF0.02%-0.06%-0.18%-0.04%0.02%-0.32%-0.45%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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