The USD/JPY pair bounced back from 153.60 as the US Dollar started to recover. Investors are more convinced that the Federal Reserve will begin reducing interest rates from September. The Japanese economy contracted at a faster pace in the first quarter of this year.
The USD/JPY saw buying interest after dropping to 153.60 during Thursday’s European session. The US Dollar stabilized after a significant decline caused by expected lower United States Consumer Price Index (CPI) data for April. This boosted expectations for the Federal Reserve to lower interest rates starting from the September meeting.
The US Bureau of Labor Statistics reported that annual figures for headline and core CPI declined as expected. This led to a sharp drop in the US Dollar Index to a monthly low around 104.00. The US Dollar seems to be stabilizing, but the future remains uncertain.
The probability of interest rates decreasing in September has increased to 73% from 69% a week ago, according to the CME Fedwatch tool. However, Fed policymakers are not likely to endorse rate cuts yet as a one-time decline in price pressures is not enough evidence that inflation will sustainably decline to the 2% target.
Investors will be watching the US Initial Jobless Claims data for the week ending May 10. The US Department of Labor is expected to show a decrease in the number of individuals claiming jobless benefits for the first time.
On the Japanese Yen front, weaker-than-expected preliminary Q1 Gross Domestic Product (GDP) data has raised concerns about the Bank of Japan’s plans to extend the policy-tightening cycle. The Japanese economy contracted at a faster pace in the first quarter of this year compared to the consensus.