The USD/JPY currency pair faced selling pressure near 145.20 during Monday’s Asian trading hours, as a weaker U.S. dollar, influenced by recent employment data, pulled the pair lower. Traders are now looking towards the U.S. ISM Services Purchasing Managers Index (PMI), due later today, for potential market direction. The PMI is projected to rise to 51.0 in July from 48.8 in June.
The U.S. dollar has been under significant pressure following disappointing labor market data for July. The Nonfarm Payrolls (NFP) report revealed an addition of 114,000 jobs, a decline from the revised 179,000 in June and below the anticipated 175,000. The unemployment rate climbed to 4.3%, the highest since late 2021, surpassing the forecast of 4.1%. Average Hourly Earnings increased by only 0.2% month-over-month, falling short of the expected 0.3%.
In contrast, the Japanese yen (JPY) could see increased demand as geopolitical tensions in the Middle East escalate. U.S. Secretary of State Tony Blinken warned G7 counterparts of a potential imminent attack by Iran and Hezbollah on Israel, according to Axios sources.
Additionally, expectations that the Bank of Japan (BoJ) may tighten monetary policy further, coupled with the unwinding of carry trades, could support the yen in the near term. NBC FX analysts Stéfane Marion and Kyle Dahms explained, “The current strength of the yen is driven by two main factors: the unwinding of carry trades initially surged the yen’s value, which was further boosted by the BoJ’s unexpected decision to raise rates to a 15-year high. The central bank’s shift towards reducing asset purchases marks a significant departure from its previously accommodative stance.”
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