Japanese Yen Under Pressure as Strong US Economy Supports Dollar

The Japanese Yen (JPY) continues to weaken against the US Dollar (USD), trading around 163.70 after hitting a fresh near 40-year high on Thursday.

The strong performance of the US economy, as evidenced by the recent PMI data, is supporting expectations for a hawkish Federal Reserve (Fed). The interest rate differential between the US and Japan remains a significant factor, favoring carry trades that limit the JPY's recovery.

While concerns over rising energy costs and repeated verbal intervention warnings from Japanese officials have yet to halt the currency's decline, the Bank of Japan (BoJ) is expected to leave interest rates unchanged at its next meeting. The preliminary US PMI data suggests annualized GDP growth of around 2% in the third quarter, although supply chain disruptions and price pressures persist.

The divergence in monetary policy between the Fed and BoJ remains the primary driver of the USD/JPY pair, with borrowing costs in Japan remaining significantly lower than in other major economies. The US Dollar is also supported by strong macroeconomic data, including the recent PMI release.