USD/JPY extends decline below 145.50 ahead of US PMI data

• USD/JPY weakens to 145.35 in Wednesday’s Asian session. 
• Higher expectations of a Fed rate cut in September undermine the USD. 
• The advanced US August S&P Global PMI will be due on Wednesday ahead of Fed Chair Powell’s speech.

The USD/JPY pair trades in negative territory near 145.35 for four consecutive days during the early Asian session on Wednesday. The softer US Dollar (USD) and expectation of a dovish message from Federal Reserve (Fed) Chair Jerome Powell at Jackson Hole drag the pair lower. 

Investors are confident that the US Fed will cut interest rates this year, expecting three quarter-point Fed cuts in September, November and December. This, in turn, exerts some selling pressure on the Greenback. Some officials said a half-point Fed rate cut in September could not be ruled out if there were signs of a further slowdown in hiring.

Minneapolis Fed President Neel Kashkari said on Monday he would be open to cutting US interest rates in September because of the rising possibility that the labor market weakens too much. “The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” said Kashkari. 

Meanwhile, Fed Governor Michelle Bowman said on Tuesday that she remains cautious about any shift in the policy because of what she sees as continued upside risks for inflation. She warned that overreacting to any single data point could jeopardize the progress already made. 

The preliminary US S&P Global PMI for August will be due later on Wednesday. If the report shows a better than expected outcome, it could cap the downside for the USD. On Friday, Fed Chair Powell's speech at the Jackson Hole symposium will be in the spotlight. 

On the JPY’s front, the upbeat Japanese Q2 Gross Domestic Product (GDP) growth might trigger the Bank of Japan (BoJ) to hike more rates this year, which boosts the Japanese Yen (JPY) broadly. The Japanese economy grew by 0.8% in the second quarter versus the forecast of 0.5%. Traders will take more cues from Japan’s National Consumer Price Index (CPI) for July, which is due on Friday.