USD/JPY trades near three-week high on strong US data, Fed keeps rates unchanged at 4.50%

• The Japanese Yen weakens further on Wednesday, with USD/JPY trading near a three-week high.
• The US Dollar extends its rally for the fifth consecutive session, driven by stronger-than-expected GDP and labor market data.
• The Bank of Japan is expected to keep rates unchanged at 0.50% when it concludes its meeting on Thursday.

The Japanese Yen (JPY) weakens further against the US Dollar (USD) on Wednesday as the Greenback extends its rally for the fifth straight day, buoyed by a string of stronger-than-expected US economic data that reinforced the resilience of the world's largest economy. At the time of writing, USD/JPY is trading near 148.85 during the American session, up around 0.20% on the day. The Japanese Yen opened Wednesday with a mildly positive tone but reversed sharply after hitting an intraday low of 147.70 during the early European session, as fresh buying interest in the US Dollar lifted the pair toward a near three-week high, last seen on July 16.

The latest US economic data released Wednesday shows strong momentum, giving the US Dollar another boost. The advance estimate for second-quarter Gross Domestic Product (GDP) revealed solid expansion of 3.0% after a weak start to the year, indicating a solid rebound in overall economic activity. Meanwhile, the core PCE Price Index remained elevated and above the central bank's target of 2.0%, reinforcing the case for a patient policy stance. On the labor front, the ADP Employment Change report revealed a stronger-than-expected gain of 104,000 private sector jobs in July, marking a notable rebound from June's sharply revised 33,000, suggesting that the labor market remains sturdy.

The Federal Reserve (Fed), as expected, held its benchmark interest rate steady at 4.50% on Wednesday, maintaining its current policy stance amid persistent inflation concerns and resilient economic data. The decision reflects the Fed's cautious approach as it gauges whether inflation is sustainably moving toward its 2% target. Focus now shifts to the FOMC press conference, scheduled for 18:30 GMT, with particular attention on Chair Jerome Powell's remarks. Traders will be looking for clarity on the potential timing of rate cuts and how the central bank views lingering price pressures stemming from recent tariff measures. The latest wave of tariffs has heightened concerns over cost-push inflation, complicating the Fed's policy outlook in the months ahead.

Meanwhile, attention is also turning to the Bank of Japan (BoJ), which concludes its two-day monetary policy meeting on Thursday. The central bank is widely expected to leave its benchmark interest rate unchanged at 0.50%, marking a fourth straight hold since exiting negative interest rates in January. At that time, the BoJ raised its key short-term policy rate from 0.25% to 0.50% -- its first hike since 2007 -- and has since maintained that level through the May and June meetings

While no change in rates is anticipated this time, the spotlight will be on the BoJ's Outlook Report and forward guidance, particularly regarding inflation expectations and the potential timing of future rate hikes. Economists anticipate the BoJ could strike a slightly more upbeat tone, especially following the recent US-Japan trade agreement, which has eased some tariff-related uncertainties.

BoJ Governor Kazuo Ueda has repeatedly said the central bank will stay flexible and base its decisions on incoming data. He's made it clear that any future rate hikes will depend on whether inflation stays near the 2% target for a sustained period. While recent numbers show that core and food prices are still high, the BoJ wants to see stronger wage growth and steady domestic demand before moving ahead with interest rate hikes.