HG MARKETS:

The Japanese Yen (JPY) is witnessing modest fluctuations against the US Dollar, showing a slight recovery from recent weekly lows and pulling the USD/JPY pair back below the 144.00 level. This rebound is driven by a positive revision to Japan’s Services PMI and expectations that rising wages may fuel inflation, reinforcing the case for another interest rate hike by the Bank of Japan (BoJ). Geopolitical tensions and lingering trade uncertainties are also supporting safe-haven flows into the Yen, strengthening its appeal.

Despite the supportive data, BoJ Governor Kazuo Ueda’s recent comments have introduced caution into the market. He emphasized high levels of global uncertainty and clarified there is no predetermined timeline for rate hikes, suggesting a more measured approach by the BoJ. Furthermore, market speculation that tapering may slow beyond 2026 and a generally risk-positive market tone is preventing traders from heavily backing the Yen, limiting further downside for USD/JPY.

Wednesday’s revised Services PMI, which came in at 51.0 versus the earlier 50.8 estimate, indicates slower but still positive growth in Japan’s service sector. This reinforces hopes for additional BoJ policy tightening in the latter half of the year. However, political instability—stemming from reports that Prime Minister Shigeru Ishiba may dissolve parliament if challenged by a no-confidence motion—could weigh on the Yen and limit near-term gains.

On the US side, the Dollar remains under pressure despite a rebound from multi-week lows. Market sentiment is shaped by expectations of future interest rate cuts by the Federal Reserve, along with fiscal concerns and the potential economic impact of newly raised tariffs on steel and aluminum. These factors continue to dampen enthusiasm for the USD and keep traders cautious.

Looking ahead, traders are awaiting key US macroeconomic data to guide short-term positioning. Tuesday’s JOLTS report beat expectations with 7.39 million job openings, providing some support to the USD. Still, the focus now shifts to the ADP private-sector employment report and the ISM Services PMI due later Wednesday, followed by the all-important Nonfarm Payrolls (NFP) report on Friday, all of which are likely to influence USD/JPY volatility in the coming sessions.