USD/JPY gathers strength above 155.00 ahead of US Services PMI data

• USD/JPY edges higher to 155.30 on Wednesday, up 0.28% on the day. 
• Japan's Labor Cash Earnings rose 2.1% YoY in April, compared to a 1.0% increase prior, higher than expected.   
• The downbeat US Manufacturing PMI in May triggered the possibility of first rate cuts from the Fed in September.

The USD/JPY pair gathers strength near 155.30 trading during the early Asian trading hours on Wednesday. The interest rate differential between the Fed and BoJ continues to create a tailwind for the pair. The US ISM services PMI data will be closely watched on Wednesday ahead of the highly-anticipated Nonfarm Payrolls (NFP), which is due on Friday.
 
Japan's Labor Cash Earnings climbed 2.1% YoY in April from the previous reading of a 1.0% increase (revised from 0.6%), above the market consensus of 1.7%. With labor cash earnings rising faster than estimated, the Bank of Japan (BoJ) will be under pressure to begin clamping down on an easy monetary policy stance, which has exerted some selling pressure on the JPY through 2024. Meanwhile, the divergence of interest rates between the US and Japan continued to undermine the JPY and cap the downside for the USD/JPY pair.

On Tuesday, BoJ Deputy Governor Ryozo Himino said that the central bank must be "very vigilant" to the impact the JPY's moves could have on the economy. Himino added that the Japanese Yen’s weakness will be among the factors affecting the timing of its next interest rate hike.

The weaker US Manufacturing PMI in May triggered the possibility of first rate cuts from the US Federal Reserve (Fed) in September. Traders are now pricing in nearly 54.9% odds of a Fed rate cut in September, up from 49% at the end of last week, according to the CME FedWatch Tool. Investors will take more cues from the US ISM services PMI data, which is projected to rise to 50.5 in May from 49.4 in the previous reading. On Tuesday, the US JOLTs Job Openings decreased from 8.355 million to 8.059 million in April, missing the market expectation of 8.34 million.