USD/JPY clings to gains near 157.00 with eyes on Fed’s policy decision

The USD/JPY pair trades in a limited range around 157.00 in Monday’s American session. The asset turns sideways after a strong recovery that was driven by strong United States (US) Nonfarm Payrolls (NFP) for May, which highlighted robust labor demand and strong wage growth.

The report also offset significant Federal Reserve (Fed) rate-cut bets for the September meeting, which were prompted by weaker-than-expected US JOLTS Job Openings data for April and ADP Employment Change data for May. Currently, the CME FedWatch tool shows that 30-day Fed Funds futures pricing data suggest a 47% chance that interest rate will be lower than the current level in September, significantly down from the 59.6% recorded a week ago.

Meanwhile, investors shift focus to the US Consumer Price Index (CPI) data for May and the Fed’s interest rate policy, which are scheduled for Wednesday.

Investors see the Fed keeping interest rates unchanged in the range of 5.25%-5.50% for the seventh straight time and delivering hawkish guidance. Fed policymakers want to see inflation declining for months to be sure about rate cuts.

The market sentiment turns risk-averse as investors see the Fed delaying rate cuts later to November or December meeting. The S&P 500 opens on a negative note as the Fed is expected to deliver only one rate-cut this year. 10-year US Treasury yields jump to 4.45%. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 105.30.

In Tokyo, investors shift focus to the Bank of Japan’s (BoJ) monetary policy decision, which will be announced on Friday. The BoJ is expected to progress further towards policy-normalization by reducing the scale of bond purchases.

(This story was corrected on June 10 at 14:15 GMT to say, in the last paragraph, that The BoJ is expected to progress further towards policy normalization, not policy easing").