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The USD/JPY pair encounters some supply during Wednesday's Asian session, eroding a portion of the previous day's strong gains to the 143.55 region, which is above the three-week high. Spot prices manage to recover a few decimals from the daily low and are currently trading just above 143.00, down less than 0.20 percent for the day.

Fitch downgraded the US government's credit rating to AA+ from AAA, citing concerns over the country's finances and debt burden. The US Dollar (USD) declines slightly as a result. The announcement negatively affected global risk sentiment, as evidenced by a modest decline in US equity futures and a gain for the safe-haven Japanese Yen (JPY). Aside from this, the Bank of Japan (BoJ) stated that there is a high likelihood that consumer inflation will moderate, but will not fall below 2%, by the middle of the current fiscal year. This gives the JPY additional support and exerts some downward pressure on the USD/JPY currency pair.

According to the minutes of the BoJ's policy meeting, members agreed to maintain the current monetary policy of cheap money. In addition, BoJ Governor Kazuo Ueda stated that the central bank would not hesitate to ease policy further and that more time was required to attain the inflation target of 2% in a sustainable manner. This, in turn, limits any significant gains for the JPY. Aside from this, the emergence of USD dip-buying enables the USD/JPY pair to recover over 40 pips from the daily low, necessitating caution before placing aggressive bearish wagers and positioning for any significant intraday depreciation move.

The Federal Reserve (Fed) is likely to raise interest rates by 25 basis points (bps) again in September or November if incoming macroeconomic data continue to indicate a robust economy. Against the backdrop of last week's optimistic US GDP report, second-quarter factory production rebounded and ended two consecutive quarterly declines. Moreover, construction expenditure in the United States increased significantly in June and May's data was revised upwards. In addition, the JOLTS report remains consistent with constrained labour market conditions and supports the likelihood of additional Fed policy tightening.

The issuance of the ADP report on private-sector employment is the next event on the economic agenda for the United States. Together with the broader risk sentiment, this will be considered for short-term USD/JPY trading opportunities. Friday's NFP report, also known as the closely-watched US monthly employment report, will continue to dominate market attention.

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