USD/JPY trades sideways above 147.00 as global recession fears ebb

• USD/JPY trades back and forth above 147.00 as investors look for fresh guidance on Fed’s rate-cut path.
• Market speculation for Fed rate cuts in September appears as imminent.
• The BoJ acknowledged the need to hike interest rates further this year.

The USD/JPY pair trades in a tight range above 147.00 in Friday’s European session. The asset consolidates as investors look for fresh cues about how much the Federal Reserve (Fed) will cut interest rates this year.

The Fed seems certain that it will start reducing its key borrowing rates from the September. While investors are divided whether the rate-cut size will be quarter or half to a percent.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 56.5% chance that interest rates will be reduced by 50 bps in September, which has come down from 74% recorded a week ago.

Market speculation for Fed reducing rates by 50 bps eased slightly as fears of a global slowdown have diminished after the release of the lower-than-expected United States (US) Initial Jobless Claims. The data indicated that labor market conditions have not slowed to great extent as the Nonfarm Payrolls (NFP) report for July exhibited.

A decline in Fed 50 bps rate-cut prospects has offered some relief to the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower in Friday’s European trading hours but holds its recovery above 103.00.

Meanwhile, the Japanese Yen’s outlook remains firm on expectations that the Bank of Japan (BoJ) could raise interest rates further this year. On Thursday, Bank of Japan’s (BoJ) Summary of Opinions (SoP) indicated that officials acknowledged the need of more rate hikes, in the July 30-31 meeting, to tame inflationary pressures, driven by higher import prices.