• USD/JPY retraces from the yearly high amid the stronger Dollar.
  • Japanese government is likely to implement new economic stimulus measures in October.
  • Markets anticipate that the Federal Reserve (Fed) will hold rates above 5% for a longer period.
  • Japanese Gross Domestic Product (GDP) for Q2 will be a closely watched event.

The USD/JPY pair retreats from a Year-To-Date (YTD) high of 147.87 and currently trades around 147.50 during the Asian session on Thursday. The better-than-expected US data lift the US Dollar (USD) against its rivals.

Wednesday’s Kyodo News cites anonymous sources to affirm that the Japanese government is likely to implement new economic stimulus measures in October, per Reuters. The news mentioned that the key goals of the stimulus are to support companies’ wage increases and to lower energy bills.

Additionally, Bank of Japan (BoJ) policymaker Junko Nakagawa stated that it is appropriate to maintain an easy monetary policy for the time being. He added that Japan has not yet attained the BoJ’s price target stably. It’s worth noting that the monetary policy divergence between the US and Japan might cap the upside of the Japanese Yen and act as a tailwind for USD/JPY for the time being.

Earlier this week, Japanese Household Spending fell 5.0% year on year in July, below the market expectation of a 2.5% drop. This figure indicated the sixth straight month of decline.

Apart from this, Japan’s top currency diplomat Masato Kanda stated a willingness to closely monitor Foreign Exchange movements with a sense of urgency while adding that all the options are on the table.

Across the pond, markets anticipate that the Federal Reserve (Fed) will maintain interest rates above 5% for a longer period. The Fed Governor Christopher Waller said that the Fed has extra room to raise interest rates, but the data will determine it. While, Fed Boston President Susan Collins pointed out the risk of an inappropriately restrictive monetary policy stance and called for a patient and careful, but deliberate policy.

About the data, the Institute for Supply Management (ISM) reported on Wednesday that the US ISM Services PMI rose to 54.5 in August from 52.7 the previous month, above the market consensus of 52.5. This figure is the highest since February. Furthermore, the S&P Global Composite’s final readings fell to 50.2 in August from 50.4 in July. In response to the upbeat data, the US Dollar Index (DXY) climbed to a near six-month high above 105.00 on Wednesday.

Looking ahead, market participants will closely watch the Japanese Gross Domestic Product (GDP) for the second quarter due on Friday. Also, Labor Cash Earnings for July and Current Account will be released from the Japanese docket. Traders will take cues from these data and find the trading opportunity around the USD/JPY pair.

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