Ella 
The U.S. dollar strengthened and USD/JPY retreated from year-to-date highs.
The Japanese government may implement new economic stimulus measures in October.
The market expects the Federal Reserve (Fed) to keep interest rates above 5% for an extended period of time.
Japan’s second-quarter gross domestic product (GDP) will be closely watched.
During the Asian session on Thursday, USD/JPY fell from the year’s high of 147.87 and is currently trading around 147.50. Better-than-expected U.S. data boosted the U.S. dollar (USD).
The Japanese government is likely to implement new economic stimulus measures in October, Kyodo News reported on Wednesday, citing anonymous sources. The message mentioned that the main goals of the stimulus measures are to support businesses to increase wages and reduce energy bills.
In addition, Bank of Japan (BoJ) policymaker Junko Nakagawa said it is appropriate to maintain loose monetary policy at the moment. He added that Japan is not yet on track to achieve the Bank of Japan’s price targets. It is worth noting that the monetary policy divergence between the US and Japan may limit the upside of the yen and act as a tailwind for USD/JPY for the time being.
Earlier this week, Japan’s household spending fell 5.0% year-on-year in July, missing market expectations for a 2.5% drop. The figure shows that Japanese household spending has fallen for the sixth consecutive month.
Beyond that, Japan’s top currency diplomat, Masato Kanda, expressed a willingness to keep a close eye on foreign exchange movements with a sense of urgency, while adding that all options were on the table.
Across the pond, markets expect the Federal Reserve (Fed) to keep interest rates above 5% for an extended period. Federal Reserve Governor Christopher Waller said the Fed has additional room to raise interest rates, but data will determine that. Boston Fed President Susan Collins, on the other hand, pointed to the risk of an inappropriately constrained monetary policy stance and called for patient, cautious but deliberate policy.
Regarding the data, the Institute for Supply Management (ISM) reported on Wednesday that the U.S. ISM Services Purchasing Managers’ Index rose to 54.5 in August from 52.7 in the previous month, higher than the market’s consensus estimate of 52.5. This number is the highest since February. Additionally, the final reading for the S&P Global Composite Index fell to 50.2 in August from 50.4 in July. The U.S. dollar index (DXY) climbed to a near six-month high above 105.00 on Wednesday on positive data.
Looking ahead, market participants will keep a close eye on Japan’s second-quarter gross domestic product (GDP) data due on Friday. Additionally, Japan will release labor cash income and current account for July. Traders will look for USD/JPY trading opportunities from this data.
