**USD/JPY Rises Above 156.50 Following Strong US Services PMI Data**
*Original article by FXStreet team. Expanded and adapted for long-form content.*
The USD/JPY currency pair moved decisively upwards, crossing the key resistance level of 156.50, after the release of robust US economic data. Traders and analysts took particular interest in the upbeat US ISM Services Purchasing Managers’ Index (PMI), which suggested continuing strength in the country’s service sector and reinforced expectations that the Federal Reserve may delay interest rate cuts.
This recent performance has significant implications for currency markets, as it impacts global interest rate expectations, risk sentiment, and capital flows. The USD/JPY pair is sensitive to fluctuations in US interest rates, bond yields, and broader macroeconomic indicators.
Below is an in-depth breakdown of the key developments influencing this move in the USD/JPY pair, along with some technical analysis and projected outlooks.
## Strong US Services Data Drives the Dollar
On Monday, July 1, 2024, the Institute for Supply Management (ISM) released its June reading for the non-manufacturing PMI, which came in stronger than expected.
– **ISM Services PMI for June rose to 53.9**, beating the consensus estimate of 52.5.
– This marks the strongest level since August 2023.
– The higher-than-expected reading points to continued expansion in the US services sector, which constitutes a substantial portion of the American economy.
Key components of the ISM report included:
– **Business activity index** rising to 58.3, up from the prior 57.2
– **New orders index** coming in at 55.5 versus 54.1 earlier
– **Employment index** at 50.7, suggesting slight job growth
– **Prices paid** fell slightly to 56.3 from 58.1 previously
These data points reflect broad-based demand and strong resilience in the US economy, particularly in areas related to consumer and business services. For currency traders, such figures signal the possibility that the Federal Reserve may keep interest rates elevated for longer than markets had initially priced in.
## Fed’s Monetary Policy Outlook in Focus
The Federal Reserve’s stance remains central to currency market movements, especially impacting pairs such as USD/JPY.
– Recent comments from Fed officials have been cautious, emphasizing that inflation remains above target and warranting patience before lowering rates.
– The Fed has consistently reiterated its “data-dependent” approach, making key economic indicators like the ISM reports critical in shaping expectations.
– Market participants now increasingly speculate that the Fed will not begin cutting rates until September or later.
The US dollar responded accordingly, gaining strength across various currency pairs including USD/JPY. Rising interest rate expectations tend to support the USD due to higher yields on investments denominated in dollars.
## Treasury Yields Climb, Supporting the Dollar
Alongside positive PMI data, US Treasury yields also moved higher:
– The **10-year Treasury yield** increased to 4.45% on Monday afternoon
– The **2-year yield**, more sensitive to rate expectations, edged higher to 4.75%
Higher yields typically attract foreign capital into US debt markets, boosting the demand for the US dollar. Since the Japanese yen is a low-yielding currency, rising US interest rates create a wider interest-rate differential, favoring USD/JPY upside.
This widening gap makes carry trades more attractive, where investors borrow in low-yielding currencies like the yen and invest in higher-yielding assets such as US bonds. The result is added pressure on the Japanese yen and support for a stronger dollar.
## Japanese Yen Under Pressure
Several domestic factors continue to weigh on the Japanese yen.
– The **Bank of Japan (BoJ)** has maintained an ultra-dovish monetary policy, keeping interest rates near zero or slightly negative in contrast to other major central banks.
– BoJ’s cautious stance toward rate normalization has contributed to
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