The Japanese Yen (JPY) is currently weak against other major currencies, with the USD/JPY trading close to resistance at 150.00. Recent data shows that Japanese private sector activity has declined, with the composite PMI dropping from 52.0 in February to 48.5 in March.
The services PMI fell to 49.5, the lowest in three years, while the manufacturing PMI decreased to 48.5, marking a multi-year low. Japan’s Finance Minister stated that the country has not moved past deflation, attributing rising prices to a weak yen and high commodity prices.
Bank Of Japan Policy Outlook
The Bank of Japan (BoJ) is expected to maintain its current policies, with less than 50 basis points of rate hikes anticipated in the next year. This outlook presents challenges for the JPY as economic conditions continue to weaken.
With the yen struggling against other major currencies, traders are closely watching whether USD/JPY will break above 150.00 or face renewed pressure. Recent economic reports paint a clear picture of slowing momentum, as private sector output contracts rather than expands. A services PMI reading below 50 suggests businesses are experiencing declining activity, while manufacturing’s continued weakness implies no immediate turnaround for Japan’s factories.
Inflation remains a concern for policymakers, but not because of strong demand. The Finance Minister pointed out that rising prices are largely the result of external factors, such as currency depreciation and high energy costs, rather than sustained domestic growth. This suggests inflationary pressures may not lead to aggressive policy shifts in the near term.
Impact On Traders
Markets have already priced in the likelihood that the BoJ will not implement major rate hikes soon. With fewer than 50 basis points expected over the next year, monetary policy will likely remain accommodative compared to other central banks. This keeps the yen relatively weak, as rate differentials favour currencies with higher yields.
For traders, this environment suggests that yen weakness may persist unless unexpected intervention or new policy guidance emerges. However, with services and manufacturing both slipping into contraction territory, economic data releases could introduce volatility, especially if they reinforce concerns about Japan’s recovery. Tracking these developments in real time will be essential.
