The USD/JPY pair takes a hit on Tuesday, dropping to around 153.50, a 0.40% decline, as the Japanese Yen (JPY) gains safe-haven appeal amidst heightened global risk aversion. The fear of potential intervention by Japan's Ministry of Finance and the hawkish stance of Bank of Japan (BoJ) Governor Kazuo Ueda further bolster the JPY's strength. Ueda's recent hints about a potential rate hike by the end of this year or early next year reinforce the BoJ's gradual policy shift expectations. However, the JPY's upward trajectory is capped by uncertainty surrounding the timing of the next BoJ rate increase, especially with Japan's new Prime Minister, Sanae Takaichi, likely to pursue expansionary fiscal policies, prompting the central bank to proceed cautiously to safeguard economic growth. In contrast, the US Dollar Index (DXY) remains resilient, hovering around 100.00, supported by Fed Chair Jerome Powell's emphasis on maintaining a restrictive stance to combat persistent inflation above 2%. Market sentiment now assigns a 70% probability of a 25-basis-point rate cut in December, a significant drop from over 90% a week ago, according to the CME FedWatch tool. The focus shifts to Wednesday's ADP Employment Report, offering an early glimpse into private-sector hiring trends in the US, which will be crucial for traders reassessing monetary policy expectations and the future trajectory of the USD/JPY pair, given the prolonged US government shutdown's impact on official labor statistics.
