The USD/JPY currency pair is maintaining strength around 157.00 as the US dollar gains momentum ahead of the Federal Reserve’s policy announcement. Traders have quickly adjusted their expectations for a Fed rate cut following a robust Nonfarm Payrolls (NFP) report for May, which highlighted strong labor demand and wage growth. The weaker-than-expected US JOLTS Job Openings and ADP Employment Change data for April and May, respectively, have dampened earlier rate-cut bets. According to the CME FedWatch tool, there is now a 47% chance of a rate cut by September, down from 59.6% a week ago.

Currently, the USD/JPY pair is trading in a narrow range at around 157.00 in Monday’s American session, reflecting a sideways movement after its recent strong recovery. The positive NFP data, which refuted the prior perception of potential Fed rate cuts, were the driving force behind this recovery.

Investors are now shifting their focus to the upcoming US Consumer Price Index (CPI) data for May and the Fed’s interest rate policy announcement, both scheduled for Wednesday. The market anticipates the Fed will keep interest rates steady in the 5.25%-5.50% range for the seventh consecutive time while providing hawkish guidance. Fed policymakers are likely to maintain a cautious stance, seeking sustained inflation declines before considering rate cuts.

Market sentiment has turned risk-averse as expectations shift towards a delay in rate cuts, potentially to the November or December meetings. Consequently, the S&P 500 opened on a negative note, and the 10-year US Treasury yields have risen to 4.45%. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has climbed to near 105.30.

In Japan, attention is on the Bank of Japan’s (BoJ) monetary policy decision, set to be announced on Friday. The BoJ is expected to continue its trend toward policy easing by reducing the scale of its bond purchases. This anticipated move could impact the JPY and USD/JPY pair dynamics.

Trade Idea:

Consider buying USD/JPY around 156.80, targeting 158.00 with a stop-loss at 156.30, given the strong US labor data and potential delay in Fed rate cuts supporting the USD.**