Yen Falls as Upbeat US PMI Boosts Dollar and Yields

USD/JPY extended its advance on Wednesday, last trading at 158.30661, up about 0.50% on the day, after earlier climbing to near three-week highs. Strong US economic data released recently provided support for the dollar, while the yen came under pressure as market risk appetite improved.

**US Data Reinforce Hawkish Expectations**

The US ISM Services PMI for May rose to 54.5 from ​53.6 in April, beating market expectations, indicating stronger momentum in services sector expansion. This data reinforced market confidence in US economic resilience and also supported the Fed's cautious stance on rate cuts. As a result, US Treasury yields moved higher, further boosting the USD/JPY exchange rate. According to FXStreet analyst Agustin Wazne, strong US data provided solid support for the dollar.

**BOJ Signals Hawkish Tone**

BOJ Governor Kazuo Ueda delivered a hawkish-leaning speech in Tokyo on Wednesday. He said that if inflation risks exceed economic growth risks, the central bank must carefully weigh the "pros and cons" of rate hikes. Ueda also warned that rising energy prices could bring broader inflation pressures, and reiterated that if core inflation develops as expected, the central bank would continue raising rates at an appropriate pace. However, these remarks failed to reverse the yen's weak trend on the day.

**Intervention Risk Remains**

Previously, when USD/JPY broke above the 160.00 level, Japanese authorities stepped in to support the yen. The most recent intervention occurred on April 30, when the yen quickly retreated from an intraday high of 160.72 to 155.55. Market reports indicated that Japan's Ministry of Finance maintained close communication with the US Treasury, with both sides saying they would not rule out further joint intervention measures if necessary. This backdrop limited upside space for USD/JPY above 160.00, but in the near term, the dollar still held the upper hand.