**USD/JPY Falls Below 161 as U.S. Economic Data and Japanese Policymaker Remarks Influence Currency Markets**
*By Mitrade News Desk*
The USD/JPY currency pair experienced notable volatility, dropping below the critical 161 level following recent U.S. economic data and commentary from Japanese policymakers. As global FX markets continue to react to macroeconomic indicators and central bank guidance, traders are closely watching for signals that could shift the delicate balance between the US Dollar and the Japanese Yen.
—
### U.S. Economic Data Drives Dollar Weakness
On Thursday, USD/JPY declined sharply after the release of soft U.S. economic data. The latest reports painted a picture of moderation in the U.S. labor market, with unexpected increases in jobless claims and easing services sector activity. These factors diminished market expectations for further aggressive policy tightening from the Federal Reserve, thereby weighing on the U.S. Dollar.
Key highlights from the U.S. economic releases:
– **Initial Jobless Claims:** The U.S. Labor Department reported that initial claims for state unemployment benefits rose by 13,000 to a seasonally adjusted 242,000 for the week ended June 29, higher than economists’ expectations of 235,000. This marked the highest level of claims since late September 2023.
– **ISM Services PMI:** The Institute for Supply Management’s (ISM) services index fell to 48.8 in June, down from 53.8 in May and notably below the forecast of 52.5. This reading indicated contraction in the U.S. services sector, which accounts for roughly two-thirds of the economy.
The combination of soft labor data and slowing services activity signaled to investors that the U.S. economy may be cooling, prompting expectations that the Federal Reserve could be on track to cut interest rates at least once later in the year.
—
### Fed Rate Cut Expectations Shift
Following the weaker-than-expected data, the probability of Fed rate cuts soared. According to CME FedWatch data:
– The chance of a September rate cut rose to nearly 70 percent, up from about 60 percent prior to the data releases.
– Traders now anticipate a total of two quarter-point cuts by the end of 2024, compared to just one cut being fully priced in at the start of the week.
With U.S. Treasury yields declining, the greenback faced broad-based selling pressure, leading to a pullback in the USD/JPY pair.
—
### USD/JPY Retreats from 38-Year Highs
The Japanese Yen has been under persistent downward pressure for much of 2024, widely attributed to the divergent monetary policies of the Federal Reserve and the Bank of Japan (BoJ). Recently, USD/JPY touched its highest level since 1986, surpassing 161.9, before succumbing to profit-taking and the latest round of U.S. data.
Several factors have influenced the recent retreat of USD/JPY:
– **Profit-taking:** After reaching multi-decade highs, traders booked gains, triggering a technical pullback.
– **Weaker Dollar backdrop:** The souring U.S. economic outlook reduced demand for the Dollar as interest differentials could narrow if the Fed moves toward easing policy.
– **Japanese remarks:** Renewed concerns about potential intervention from Japanese authorities put traders on alert for Yen-positive developments.
—
### Japanese Policymaker Intervention Threats
In response to the Yen’s sharp depreciation, senior Japanese officials have stepped up their warnings, hinting that intervention in FX markets could be imminent if excessive movements persist.
Key takeaways from Japanese policymakers’ comments:
– Finance Minister Shunichi Suzuki reiterated that authorities “remain vigilant” and are “prepared to act decisively” against disorderly market behavior.
– Suzuki underscored that “rapid and one-sided moves” are undesirable and warned that authorities “will not rule out any options.”
– Masato Kanda, Japan’s top currency diplomat, stated that authorities would “respond
Read more on GBP/USD trading.