USD/JPY is trading with significant strength, surging to the upper end of its recent range as the Japanese Yen continues to underperform after the Bank of Japan's latest policy meeting. The pair is up 1.76% on the day and approaching the 146.00 area, driven by renewed divergence between the US and Japanese monetary policy outlooks and fresh signs of weakness in the US labor market.

The BoJ kept interest rates unchanged at 0.50% and lowered its GDP and inflation forecasts for the current and next fiscal years, citing rising external risks and domestic uncertainties. BoJ Governor Kazuo Ueda struck a cautious tone during his press conference, noting that inflation momentum may be stalling and that the outlook lacks the conviction needed for further rate hikes. The central bank now expects GDP growth of just 0.5% for FY2025, down from 1.1%, and also lowered its inflation forecast. Markets interpreted the stance as dovish, pushing back expectations for the next hike to late 2025 at the earliest.

Meanwhile, the US dollar strengthened against most major currencies after mixed data. The ISM Manufacturing PMI fell slightly to 48.7 in April, down from 49.0, but still better than the 48 expected. Employment conditions in the manufacturing sector improved modestly, with the subindex rising to 46.5, while the Prices Paid Index rose to 69.8, indicating continued cost pressures. Additionally, initial jobless claims rose to 241,000, above the previous week's print and market expectations, signaling a weakening labor market. These figures add to the view that the Fed may need to respond soon with interest rate cuts to support growth.

Political and trade uncertainties also added a layer of caution to market sentiment. Former Treasury Secretary Janet Yellen warned of the adverse economic impact of Trump's new tariffs, while reports suggested the US may seek to re-engage with China and Japan on trade terms. The USD remains broadly supported for now, helped by rising US Treasury yields and strong tech earnings boosting equity sentiment.(Newsmaker23)

Source: Fxstreet