Ella 
During the Asian session on Thursday, USD/JPY was unable to extend the previous day’s rebound from the one-week low of 145.55 and once again faced selling pressure. USD/JPY is currently slightly above the 146.00 round figure, with a decline of more than 0.10% throughout the day, and may further decline under the weakening tone of the US dollar (USD).
Indeed, the U.S. Dollar Index (DXY), which tracks the greenback against a basket of currencies, remains on the defensive after hitting near two-week lows following weak U.S. macro data on Wednesday. A report released by Automatic Data Processing (ADP) showed that U.S. private sector employment increased by 177,000 in August, compared with expectations of 195,000 and the previous value of 324,000. In addition, the revised annualized quarterly rate of U.S. real gross domestic product in the second quarter was revised down to 2.1% from the expected 2.4%, which also strengthened expectations that the Federal Reserve (Fed) will pause its interest rate hike cycle in September.
This in turn resulted in a sharp fall in U.S. Treasury yields overnight and continued to weaken the U.S. dollar, which in turn put pressure on the USD/JPY pair. However, markets still believe the Fed is likely to raise interest rates by another 25 basis points before the end of the year. In contrast, the Bank of Japan is expected to stick to its ultra-loose monetary policy regime. Therefore, this may inhibit traders from making aggressive bearish bets around USD/JPY. It is worth recalling that Bank of Japan Governor Kazuo Ueda said last week that Japan’s potential inflation rate is still slightly below the 2% target, which will ensure that the central bank keeps policy unchanged until next summer.
Meanwhile, Japan’s Ministry of Economy, Trade and Industry reported that industrial production fell 2.0% monthly in July, compared with expectations for a 1.4% decline and a 2.4% rise the previous month. However, market disappointment was largely offset by better-than-expected retail sales data in Japan, which rose at an annual rate of 6.8% in July, up from 5.6% the previous month. The data provided little lift for USD/JPY as market focus remained on the U.S. core PCE price index – the Fed’s preferred inflation gauge – and U.S. jobless claims figures for last week due later in the North American morning session.
