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The Impact of Weaker US ADP Report on USD/JPY and Its Implications for the FOMC Policy Decision

The USD/JPY pair has been experiencing a downward trend over the past few days, primarily due to the release of weaker US ADP report and a combination of other factors. The US private sector employers added 106 jobs in January, which is well below the consensus estimates, leading to speculation that the Fed might slow its pace of policy tightening. In this article, we will delve into the reasons behind the recent downward trend of the USD/JPY pair and what implications it holds for the upcoming FOMC policy decision.

Weaker US ADP Report: A Game-Changer for the USD/JPY Pair
The recent release of weaker US ADP report has had a significant impact on the USD/JPY pair. The headline print was below consensus estimates, pointing to a reading of 106 jobs in January, which is a sharp drop from the previous month’s upwardly revised 253K. This weak economic data has led to speculation that the Fed might slow its pace of policy tightening, which, in turn, has weighed down the US Treasury bond yields and exerted pressure on the USD/JPY pair.

Rise of the Japanese Yen (JPY) as a Safe Haven
In addition to the weaker US ADP report, the Japanese Yen (JPY) is drawing support from speculation that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) later this year. The JPY’s safe-haven status is further strengthened by the softer risk tone in the equity markets, which is seen as another factor acting as a headwind for the USD/JPY pair.

Focus Remains on the FOMC Policy Decision
Despite the downward trend of the USD/JPY pair, the downside seems limited, as traders await the critical FOMC policy decision. The US central bank is widely expected to deliver a smaller 25 bps hike, while the focus will remain on the accompanying monetary policy statement and Fed Chair Jerome Powell’s remarks at the post-meeting press conference. Investors will be looking for cues about the future rate-hike path, which will play a crucial role in influencing the USD price dynamics.