Monetary policy tightening through rate hikes and a sharp cut in JGB purchases could have more lasting success in bolstering the Yen. In April, the Japanese government intervened to strengthen the Yen. The USD/JPY slid below the 152 handle on May 3, only to retake the 160 handle on June 26.

On Wednesday, June 26, Bruegel Senior Fellow Alicia Garcia Herrero shared her views on effective measures to bolster the Yen, saying,

“Bank of Japan to start quantitative tightening, which could support the Yen more than intervention.”

The Bank of Japan is banking on a more dovish Fed rate path, the net effect being a narrowing of the interest rate differential in favor of the Japanese Yen. If US economic indicators signal a more hawkish Fed rate path, the BoJ may need to take more aggressive measures to counter US Treasury yield trends.

Can US jobless claims raise expectations of a September Fed rate cut?

US Jobless Claims: A Prelude to the Crucial Friday Data Release

Later in the session on Thursday, US jobless claims, durable goods orders, and finalized Q1 GDP numbers will garner investor attention.

Unless there is a downward revision to Q1 GDP numbers and a slump in durable goods orders, weekly jobless claims could influence the Fed rate path more.

Economists expect initial jobless claims to fall from 238k to 236k in the week ending June 22. A larger-than-expected fall in jobless claims could reduce investor bets on a September Fed rate cut.

Tight labor market conditions support wage growth and consumer confidence. Upward wage trends and consumer confidence could fuel consumer spending and demand-driven inflation. The Fed could leave rates higher for longer to raise borrowing costs, impact hiring trends, and reduce consumer spending.

Labor Market and Consumer Confidence Trends Highlight the Fed Dilemma

Conference Board Chief Economist Dana Peterson commented on the June US consumer confidence survey, attributing the narrow movements in the CB Consumer Confidence Index to a robust US labor market.

Consumer confidence and unemployment trends suggest the Fed may require higher unemployment levels if inflationary pressures persist. The CB Consumer Confidence Index last dropped below 90 in January 2021. The US unemployment rate stood at 6.3% in January 2021 compared with 4.0% in May 2024. However, a sharp rise in unemployment could signal a hard landing and its election year.