- The yen has dropped to a three-week low against the US dollar, with the USD/JPY pair benefiting from strong dollar dynamics.
- The PMI in Japan’s manufacturing sector fell deeply into contraction, though services remained stable.
- Investors are anticipating insights from the upcoming BOJ minutes, which are set to release on Thursday, for cues on policy direction.
On Wednesday, the Japanese yen (JPY) experienced a notable decline against the US dollar (USD), pushing the USD/JPY to its highest point since early September. Currently, the pair trades around 148.78.
The dollar’s recovery gained momentum following careful comments from Federal Reserve officials, particularly Chairman Jerome Powell. He emphasized that inflation presents a “double-sided risk,” and the labor market indicates that there are “no risk-free passes” regarding monetary policy. Powell’s statements seem to set a timeline for future interest rate reductions while maintaining the Fed’s cautious stance ahead of upcoming meetings.
The yen’s downturn is compounded by disappointing domestic data. The Jibun Bank Flash Manufacturing Purchasing Managers Index (PMI) plunged into contraction territory in September, dropping from 49.7 in August to 48.4, diverging from the forecast of 50.2. In contrast, the Services PMI remained robust at 53, only mildly below the previous figure of 53.1.
Attention is now shifting toward the minutes from the Bank of Japan (BOJ) meeting expected on Thursday, which will offer insights into last week’s decision on monetary policy. The BOJ maintained its benchmark rate at 0.50%, with a voting outcome of 7-2 where two members expressed opposition, advocating for a 25 basis point hike.
Officials are repeating that the overnight call rate will hover around 0.50%, stressing that future changes will be contingent on inflation and wage trends. “Underlying inflation is still slightly under 2%, but getting close,” noted Governor Midorida, while also highlighting the need to monitor risks from ongoing US tariffs and food price pressures.
Looking ahead, Thursday will see the release of US economic data, which sets the stage for Friday’s core Personal Consumption Expenditures (PCE) price index, along with initial unemployment claims and revised second quarter GDP estimates. Meanwhile, in Japan, the Tokyo Consumer Price Index (CPI) due on Friday will be closely watched for indications about inflation and its potential influences on BOJ policy.
