• USD/JPY fades the previous day’s rebound from three-week low.
• Cautious optimism in Asia, upbeat Japan data and BoJ bias weigh on Yen pair.
• Mixed US data pushes back expectations of Fed’s rate hike in September.
• Moody’s revises up 2023 US growth forecasts but keeps 2024 GDP outlook intact.

USD/JPY stays defensive around 146.10-15 heading into Monday’s European session after witnessing a sluggish start to the key week comprising Japan growth numbers and the US ISM Services PMI. The Yen pair’s latest inaction could be linked to the US Labor Day holiday, as well as mixed clues about the US Federal Reserve (Fed) and the Bank of Japan (BoJ).

Earlier in the day, Japan Monetary Base data for August suggests an increase in liquidity with 1.2% YoY growth versus -1.3% prior. The same joins the market’s hawkish expectations from the BoJ to defend the Japanese Yen (JPY) buyers despite the cautious optimism in the market and inactive bond markets, due to the US holiday.

Elsewhere, market sentiment remains positive as China stimulus joins increasing hopes of witnessing no more rate hikes from the US Federal Reserve (Fed).

China’s government established a special cell to promote the private economy and open up barriers for the services industry and bolstered the sentiment early Monday, following a slew of measures to defend the world’s second-largest economy. On Friday, the People's Bank of China’s (PBoC), heavy cut to its foreign exchange reserve requirement ratio (FX RRR) to 4% from 6.0% effective from September 15 gained major attention. On the same line a slew of China banks cut interest rates on Yuan deposits to ease the pressure from lower mortgage rates announced previously. Additionally, Reuters cited four people familiar with the matter to report that China is likely to step up action to revive the country’s property sector.

On the other hand, the receding odds of the Federal Reserve’s (Fed) hawkish moves in the future, mainly after Friday’s mixed US jobs report for August, also underpins the market’s optimism and weigh on the USD/JPY price.

Talking about the US data, US Nonfarm Payrolls (NFP) rose to 187K in August versus 170K expected and 157K prior (revised) even as the Unemployment Rate marked an uptick to 3.8% from 3.5% market forecasts and previous readings. Further, the Average Hourly Earnings also eased to 0.2% and 4.3% compared to 0.4% and 4.4% respective priors. Additionally, the US ISM Manufacturing PMI also impressed the US Dollar buyers with the 47.6 figures versus analysts’ estimation of 47.0 versus 46.4 previous readings. Following the data, Federal Reserve Bank of Cleveland President Loretta J. Mester advocated for hawkish monetary policy and allowed the Greenback to remain firmer the previous day.

Meanwhile, the US-China tension and upward revision of the US growth forecasts for 2023 by the global rating agency Moody’s prods the USD/JPY bears amid a sluggish session.

While portraying the mood, the US Dollar Index (DXY) snaps a two-day winning streak with mild losses to around 104.15 whereas the S&P 500 Futures print mild gains of late. It’s worth noting that the benchmark US 10-year Treasury bond yields dropped in the last two consecutive weeks after rising to the highest levels since 2007, to 4.18% at the latest.

Moving on, the US market’s holiday may restrict the USD/JPY performance on Monday but Japan’s second-quarter (Q2) Gross Domestic Product (GDP) and the US ISM Services PMI will be important to watch for clear directions