Original article by FXStreet – Written by Anil Panchal
Rewritten and expanded by AI, for educational and informational use only.
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**USD/JPY Bounces Back from Three-Week Lows as Strong U.S. PPI, Labor Market Data Support the Greenback**
The USD/JPY currency pair experienced a notable rebound on Thursday, breaking a multi-day losing streak and regaining momentum following the release of stronger-than-expected U.S. economic data. The pair climbed to approximately 152.90 after hitting a low of 152.00 earlier in the day, its weakest level in three weeks. The upside was driven primarily by better-than-forecast U.S. Producer Price Index (PPI) numbers and an unexpected decline in initial jobless claims, which reinforced the strength of the U.S. economy and boosted the U.S. dollar.
Meanwhile, market participants continue to monitor the actions and tone of the Bank of Japan (BoJ) following potential verbal intervention efforts earlier in the week. Despite this, the yen remains relatively weak against the dollar, weighed down by Japan’s ultra-loose monetary policy settings and subdued domestic economic indicators.
Here’s a more detailed look at the key drivers, technical setup, and market sentiment shaping the USD/JPY outlook.
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### Key Developments Supporting USD/JPY Rebound
The recovery in USD/JPY came against a backdrop of robust U.S. macroeconomic data, which not only bolstered confidence in the U.S. economic outlook but also reignited expectations that the Federal Reserve may maintain a hawkish stance for a longer period than initially anticipated. Below are the primary catalysts propelling the surge in the currency pair:
#### 1. Strong U.S. Producer Price Index (PPI) Figures
– The U.S. PPI for final demand increased by 0.5% month-on-month in April, surpassing the market forecast of a 0.3% gain.
– On an annual basis, the core PPI (excluding food and energy) rose 2.4%, also beating estimates and highlighting persistent inflationary pressures.
– The data followed a similarly elevated Consumer Price Index (CPI) reading earlier in the week, reinforcing the perception that inflation remains sticky.
– Rising producer prices suggest that companies may pass higher costs onto consumers, sustaining upward pressure on inflation and, by extension, interest rates.
#### 2. Improved U.S. Labor Market Conditions
– Initial jobless claims in the United States dropped unexpectedly to 222,000 for the latest week, down from the prior reading of 232,000 and below consensus expectations.
– Continuing claims also declined, suggesting that those who lose their jobs are finding new employment more quickly.
– The labor market remains resilient, strengthening the case for the Federal Reserve to delay any interest rate cuts.
The combination of these positive releases reinforced demand for the U.S. dollar, sending the greenback higher across the board and pushing the USD/JPY pair off its recent lows.
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### Diminished Prospect of Immediate Fed Rate Cuts
In light of persistent inflation and strong labor market strength, the Federal Reserve is likely to adopt a cautious approach to easing monetary policy. Market pricing for Fed funds futures has shifted significantly in response to the latest data:
– Investors are now pricing in just one 25-basis-point rate cut by the end of 2024, down from earlier expectations of multiple cuts throughout the year.
– Some economists believe the Fed may wait until 2025 to initiate any monetary easing if inflation fails to show a consistent decline.
– Federal Reserve officials have also reiterated their data-dependent stance, emphasizing the importance of bringing inflation reliably back to the 2% target level.
This repricing of rate expectations has led to a rebound in U.S. Treasury yields, further supporting the dollar and widening the interest rate differential in favor of the greenback over the yen.
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### Bank of Japan’s Policy Remains Ultra-A
Explore this further here: USD/JPY trading.