The Japanese Yen (JPY) remains weak against a broadly stronger US Dollar (USD), with USD/JPY trading close to the 148.00 level during Wednesday’s European session. Earlier data showed Japan’s manufacturing sector contracted at the fastest pace in six months, fueling concerns about economic headwinds from US tariffs and political uncertainty at home. These factors could give the Bank of Japan (BoJ) more reasons to delay policy tightening, weighing further on the Yen.
Still, investors expect the BoJ to continue its path toward normalization, supported by last week’s hawkish dissents despite the central bank’s decision to hold rates steady. This contrasts sharply with the US Federal Reserve’s outlook, which signaled two additional rate cuts for this year. Such policy divergence could help the JPY limit deeper losses, particularly with geopolitical tensions also supporting safe-haven demand.
Manufacturing PMI deepens concerns, politics add uncertainty
The S&P Global flash Manufacturing PMI for Japan dropped from 49.7 in August to 48.4 in September, the steepest fall since March and marking contraction in 14 of the past 15 months. This weak reading pressured the Yen in early Asian trading.
Adding to the uncertainty, Japan’s ruling Liberal Democratic Party (LDP) holds a leadership election on 4 October. A win for a dovish candidate could delay BoJ rate hikes, though the bank has reiterated that tightening remains possible if the economy and inflation move in line with forecasts.
Markets are still pricing in the chance of a 25-basis-point hike in October, reflecting underlying resilience in Japan’s economy. This stands in contrast to the Fed’s more dovish tone, reinforcing the policy divergence narrative that could offer the JPY some support.
Powell’s comments revive USD demand
The US Dollar found fresh buyers after Fed Chair Jerome Powell emphasized on Tuesday that easing policy too aggressively risks leaving inflation unresolved, potentially requiring a policy reversal. His remarks pushed back against market expectations for rapid cuts, helping the USD recover from a two-day slide and providing a lift to USD/JPY.
Traders now await US New Home Sales data later in the day, along with upcoming key releases including final GDP and the Fed’s preferred inflation gauge, the PCE Price Index. On the Japanese side, Tokyo CPI due Friday could further influence BoJ expectations and drive JPY volatility.
Technical outlook: 148.00 remains a key barrier
USD/JPY has been consolidating within a range since early August, forming a rectangle pattern on daily charts. Momentum indicators are mostly neutral, suggesting caution before committing to a clear direction. Spot prices remain capped below the 200-day Simple Moving Average (SMA), reinforcing downside risks.
Immediate resistance lies near the 148.00 level, followed by 148.35–148.40 (this week’s high) and the 200-day SMA around 148.55. A sustained break above these levels could open the path towards 149.00 and the monthly peak near 149.15.
On the downside, support is seen at mid-147.00s, followed by Friday’s post-BoJ low near 147.20 and the 147.00 round figure. A decisive break below this zone could accelerate losses toward 146.20, with further downside potential to 145.50–145.45, last tested on 7 July.
