USD/JPY bounces back strongly on lower US Jobless Claims

• The USD/JPY pair continues its recovery as US initial jobless claims for the week ending December 27 came in lower than expected.
• The Federal Reserve is expected to gradually lower interest rates this year as officials remain confident about the US economic outlook.
• Japan’s Kato warned against intervening against excessive movements in the currency market.

The USD/JPY pair rebounded from an intraday low of 156.43 in the North American session on Thursday. The asset is recovering as the US Dollar (USD) hit a new two-year high, with the US Dollar Index (DXY) rising above 108.80, as US initial jobless claims for the week ending December 27 came in lower. It is expected.

The Labor Department reported that individuals claiming unemployment benefits for the first time were 211,000, lower than the estimate of 222,000 and the previous release of 220,000, revised upward from 216,000.

The US dollar has already performed strongly amid expectations that the Federal Reserve (Fed) will gradually lower interest rates this year.

The pace of Fed rate cuts in 2024 has been somewhat aggressive as policymakers have focused on improving labor market conditions rather than reducing price pressures. In the process, the Fed has cut key borrowing rates by 100 basis points in the last three monetary policy meetings.

For this year, Fed officials have directed fewer interest rate cuts due to their optimism about the U.S. economic outlook. The latest dot plot showed that policymakers collectively expect the federal funds rate to head to 3.9% by the end of the year.

Meanwhile, the Japanese yen performed strongly against its major counterparts on Thursday amid concerns that the Japanese administration may intervene in the FX space against excessive foreign exchange moves. Japanese Finance Minister Katsunobu Kato said last week that the authorities are closely monitoring currency market movements and will work to stabilize the faltering yen.