Japanese Yen declines as upbeat US PMI lifts the US Dollar, yields

The Japanese Yen (JPY) continued its downward trend against the US Dollar (USD) on Wednesday, with the USD/JPY pair reaching a three-week high as the hawkish Federal Reserve outlook boosted the greenback. The USD/JPY reached around 158.18, up 0.50% for the day, while the US Dollar Index (DXY), which tracks the dollar's value against a basket of six currencies, traded at 101.00, its highest since July 30.

Stronger-than-expected US business activity data, including the preliminary S&P Global US Composite PMI at 58.4 and manufacturing PMI at 57, fueled expectations that the Fed could maintain its tightening path after a 25 basis points (bps) rate hike last week. Elevated oil prices due to the Middle East conflict, along with the Bank of Japan's (BoJ) recent rate hike, have added to inflation risks.

The BoJ raised its policy rate to 1.25%, its highest in 31 years, but dissenting votes and limited guidance on future hikes led traders to view the move as somewhat dovish. Despite this, further rate hikes are likely to be needed to bring inflation back to the Fed's 2% target, pushing US Treasury yields to multi-year highs.