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USD/JPY maintained a defensive stance around 146.10-15 during Monday’s European session after a sluggish start to a key week including Japanese economic growth data and the U.S. ISM Services PMI. The pair’s recent consolidation could be related to the U.S. Labor Day holiday and mixed cues from the Federal Reserve and Bank of Japan.
Earlier in the day, Japanese Monetary Base data for August showed an increase in liquidity, rising 1.2% year-on-year from -1.3% previously. The Bank of Japan defended hawkish expectations from Japanese yen (JPY) buyers despite cautious optimism and inactive bond markets due to U.S. holidays.
Elsewhere, market sentiment remained positive amid China’s stimulus and growing hopes that the U.S. Federal Reserve will not raise interest rates again.
The Chinese government has set up a special group to promote the development of the private economy and open up barriers to the service industry, boosting market sentiment in early trading on Monday after taking a series of measures to defend the world’s second-largest economy. Last Friday, the People’s Bank of China (PBoC) significantly lowered the foreign exchange reserve requirement ratio (FX RRR) from 6.0% to 4% starting from September 15, which attracted widespread attention. Meanwhile, a number of Chinese banks have cut interest rates on renminbi deposits to ease pressure from previously announced cuts in mortgage rates. In addition, Reuters quoted four people familiar with the situation as saying that China is likely to step up efforts to revive the domestic real estate industry.
On the other hand, the possibility of future hawkish moves by the Federal Reserve (Fed) has weakened, mainly after the mixed US employment report for August released on Friday, which also supports market optimism and poses a threat to the price of USD/JPY pressure.
Turning to U.S. data, U.S. non-farm payrolls (NFP) rose to 187,000 in August versus expectations of 170,000 and the previous reading of 157,000 (revised), although the unemployment rate rose from 3.5% forecast and the previous reading. 3.8%. In addition, average hourly earnings also fell to 0.2% and 4.3%, respectively, from the expected 0.4% and the previous value of 4.4%. Elsewhere, the U.S. ISM Manufacturing Purchasing Managers’ Index (PMI) also impressed dollar buyers, coming in at 47.6, compared with analysts’ expectations of 47.0 and the previous reading of 46.4. After the data was released, Cleveland Federal Reserve President Loretta J. Mester advocated a hawkish monetary policy, causing the dollar to continue to strengthen in the previous trading day.
Meanwhile, U.S.-China tensions and global ratings agency Moody’s raising its U.S. economic growth forecast for 2023 pushed USD/JPY bearish in a subdued trading session.
The U.S. dollar index (DXY) fell modestly to around 104.15, snapping a two-day winning streak, while S&P 500 futures posted modest gains in the near-term. Notably, the yield on the benchmark U.S. 10-year Treasury note has fallen for two straight weeks after rising to its highest level since 2007, last at 4.18%.
Moving forward, a holiday in the U.S. market may limit USD/JPY performance on Monday, but Japan’s second-quarter (Q2) gross domestic product (GDP) and U.S. ISM services purchasing managers’ index (PMI) will be clear directions to watch. important basis.
