Concerns About Japanese Intervention Intensify, USD/JPY Slightly Adjusts To Below 161.00

USD/JPY continued to pull back to around 161.80 during the European session on Friday. The yen retreated sharply due to concerns that Japan would intervene in the foreign exchange market due to excessive one-sided moves, while the sharp drop in the US dollar weighed on the pair due to firm speculation that the Federal Reserve (Fed) would start cutting interest rates from the September meeting.

The yen struggled to rise despite policymakers at the Bank of Japan (BoJ) advocating further monetary tightening. The weak yen prompted consumers to generate inflation expectations as Japan’s exports have become globally competitive while import costs have increased significantly.

However, a sharp contraction in Japan’s overall household spending in May cast doubts on the BoJ’s path to rate hikes. The economic data unexpectedly fell by 1.8%. Economists predict that the growth rate of household purchasing power will slow to 0.1% from the previous value of 0.5%.

Meanwhile, the increased probability that the Federal Reserve will start cutting interest rates in September also increased investors’ risk appetite. S&P 500 futures rose during the Asian trading session.

The US dollar index (DXY), which tracks the value of the US dollar against six major currencies, fell further and hit a three-week low near 105.00. The 10-year US Treasury yield rose to around 4.36% before the release of US non-farm payrolls (NFP) data at 20:30 Beijing time.

The US non-farm population is expected to increase by 190,000 in June, compared with 272,000 in the previous month, and the unemployment rate is expected to remain stable at 4%.

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