A recent shift in market sentiment has caused the USD/JPY pair to pull back as safe-haven demand for the Yen increases. Rumors circulating that the Bank of Japan (BoJ) is considering reducing its bond purchases at the June meeting have also impacted the currency pair. This potential policy change would raise Japanese bond yields, which would in turn benefit the Yen and negatively impact USD/JPY.
The US Dollar has experienced a rebound after a steep sell-off following the release of lower-than-expected US ISM Manufacturing PMI data for May. However, the bounce-back appears uncertain as concerns about future growth and inflation expectations have led to speculation that the Federal Reserve (Fed) may lower interest rates. There is now a 65% probability of a rate cut in September, according to the CME FedWatch tool.
The market rumors regarding the BoJ’s potential policy shift have contributed to a more than half a percent decline in USD/JPY. Reports suggest that the BoJ may discuss reducing its bond purchases as early as the next meeting, leading to concerns about intervention in the FX market to support the Yen. The BoJ is aiming to normalize policy and is closely monitoring currency movements and their impact on the economy.
Deputy Governor of the BoJ, Ryozo Himino, has raised concerns about the negative effects of a weak Yen on the economy, particularly on inflation and consumption. The BoJ is considering a more hawkish policy move at the June policy meeting to address these issues. The focus for the pair this week will be on US job data, including the JOLTS Job Openings, ADP payrolls figures, and US Nonfarm Payrolls on Friday. A decline in the data could further weaken the USD, affecting USD/JPY.
In conclusion, the USD/JPY pair has experienced a pullback due to safe-haven demand for the Yen and rumors of the BoJ considering reducing bond purchases. The rebound of the US Dollar following lower manufacturing data has been uncertain, with increasing speculation of a Fed interest rate cut. Concerns about intervention in the FX market to support the Yen have added to the pressure on USD/JPY. The focus for the pair this week will be on US job data, which could further impact the currency pair depending on the results.
