USD/JPY edges lower on Friday, trading around 163.70, down 0.09% on the day at the time of writing, after hitting a fresh near 40-year high on Thursday.
Investors are trimming some long positions amid the risk of intervention from Japanese authorities in the foreign exchange market, though the broader fundamental backdrop continues to favor the US Dollar (USD) against the Japanese Yen (JPY)
The divergence in monetary policy between the Federal Reserve (Fed) and the Bank of Japan (BoJ) remains the primary driver of the pair. Although the Japanese central bank has raised interest rates to 1%, borrowing costs in Japan remain significantly lower than in other major economies, keeping carry trades attractive and weighing on the JPY. The US Dollar is also supported by the latest macroeconomic data.
The preliminary United States (US) S&P Global Composite Purchasing Managers Index (PMI) rose to 53.6 in July from 51.9 in June, pointing to an acceleration in private sector activity. The Services PMI improved to 53.6, while the Manufacturing PMI eased slightly to 53.8. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the survey is consistent with annualized Gross Domestic Product (GDP) growth of around 2% in the third quarter, although supply chain disruptions and price pressures continue to intensify.