USD/JPY climbs as BoJ dovishness weighs on Yen, US data in focus

• USD/JPY climbs toward 155.40 on Tuesday, posting a modest daily gain in a cautious, risk-off environment.
• Traders await ADP employment figures and US Factory Orders to refine short-term US Dollar expectations.
• The JPY remains under pressure due to the BoJ's dovish stance, despite renewed warnings about potential FX intervention.

USD/JPY trades around 155.40 on Tuesday at the time of writing, up 0.10% on the day and reaching a fresh ten-month high. The pair benefits from a slightly firmer US Dollar (USD) amid a cautious market mood, while the Japanese Yen (JPY) continues to weaken under the weight of Japan’s ultra-loose monetary policy.

The US Dollar shows a mild upward bias as investors remain hesitant to take strong directional positions ahead of a backlog of US economic reports delayed by the recent government shutdown. Markets are watching Tuesday’s ADP weekly employment reading and the US Factory Orders release, which could shape the Greenback’s near-term direction before Thursday’s highly anticipated Nonfarm Payrolls (NFP) report for September.

Monday’s US data also supported the US Dollar. The Empire State Manufacturing Index sharply beat expectations, climbing to its highest level in nearly one year in November, while construction spending surprised to the upside in August. Together, these figures point to a resilient US economy despite administrative disruptions.

Still, some remarks from Federal Reserve (Fed) officials encourage caution. Governor Christopher Waller warned that rapid adoption of Artificial Intelligence technology could reduce demand for labor, potentially forcing the Fed to ease policy sooner if the job market weakens. Even so, expectations for a December rate cut remain below 50%, with investors awaiting additional data in the coming days.

Markets will also monitor upcoming comments from Fed Governor Michael Barr and Richmond Fed President Thomas Barkin for further clues regarding the December meeting.

In Japan, the JPY remains under pressure. The currency is weighed down by the persistently dovish stance of the Bank of Japan (BoJ), after Prime Minister Sanae Takaichi urged the central bank to maintain very low interest rates to support growth. This political message reinforces the view that any further tightening may be delayed, especially following Japan’s third-quarter GDP contraction.

According to Nikkei Asia, Tokyo is also considering tax cuts aimed at boosting consumption, a move that raises questions about fiscal sustainability and further undermines the Japanese Yen’s appeal. Even so, recent warnings from Japanese officials have helped limit extreme bearish positioning. Finance Minister Satsuki Katayama reiterated concerns over “one-sided, rapid” currency moves, keeping speculation about possible intervention alive.