Yen Weakens As Investors Remain Cautious Ahead Of ISM PMI

The Japanese yen (JPY) recovered recent losses after Economy Minister Yoshitaka Shindo announced on Monday that the government will “continue its efforts to achieve a primary balance of payments in fiscal 2025.” Shindo also expressed optimism that “actual economic growth of 1.3% in fiscal 2025 is not unrealistic,” according to Reuters.

The year-on-year increase in Tokyo’s consumer price index (CPI) rose to 2.2% in May from 1.8% in April, as reported last Friday. If inflation falls nationwide, this could prevent the Bank of Japan (BoJ) from raising interest rates. The large interest rate differential between Japan and other countries continues to put pressure on the yen, supporting the USD/JPY currency pair.

The U.S. dollar index (DXY), which measures the value of the greenback against six other major currencies, fell after the release of the U.S. personal consumption expenditures (PCE) data, which is favored by the Federal Reserve, showed some easing of price pressures in April.

Last week, Federal Reserve officials hinted that it is possible for the central bank to achieve its 2% annual inflation target without further rate hikes. This stance has led to downward pressure on U.S. Treasury yields, weakening the dollar. Investors will likely look to the ISM manufacturing purchasing managers’ index, due on Monday, for fresh clues on the state of the U.S. economy.

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