The Japanese Yen (JPY) continues its downward slide against the US Dollar (USD) for the third consecutive day on Monday, weakened by a disappointing flash March Purchasing Managers’ Index (PMI) and a generally upbeat market sentiment that undermines the safe-haven currency.
The March PMI data painted a bleak picture for Japan’s economy, with the Au Jibun Bank Japan Manufacturing PMI dropping to 48.3, its lowest reading since March 2024, marking the ninth consecutive month of contraction. The service sector, previously a bright spot for Japan, also contracted for the first time in five months. Coupled with a sharp decline in business outlook, these factors put additional pressure on the Yen.
The JPY’s weakness is further compounded by an optimistic market tone, with investors buoyed by reports suggesting that US President Donald Trump may pursue a narrower, more targeted approach to upcoming tariffs. This reduces concerns about disruptive trade policies and boosts confidence in risk assets, further eroding demand for the Yen.
However, despite the Yen’s weakening trend, the currency could find some support due to expectations of continued interest rate hikes by the Bank of Japan (BoJ). Recent labor negotiations in Japan revealed strong wage growth, which could fuel inflationary pressures, supporting the case for tighter monetary policy. Inflation in Japan remains above the BoJ’s 2% target, keeping the door open for potential rate hikes.
BoJ Governor Kazuo Ueda and Deputy Governor Shinichi Uchida both emphasized that the central bank is prepared to adjust its monetary policy, including raising rates, if economic and inflation targets are met. Uchida further stated that the BoJ would continue to assess both domestic and global economic conditions before making such adjustments.
Meanwhile, the Federal Reserve’s latest inflation projection and its anticipated interest rate cuts are limiting the upside potential of the US Dollar, particularly in the wake of last week’s recovery from a multi-month low. This, in turn, is expected to cap the upside for the USD/JPY pair.
Looking ahead, traders are eyeing the release of flash US PMIs for further market direction. Additionally, key data points later in the week, including the Tokyo CPI and the US Personal Consumption Expenditure (PCE) Price Index, will provide more insight into inflation trends and central bank policy directions.
Technical Outlook:
From a technical standpoint, the USD/JPY pair needs to break above the 150.00 psychological level, supported by the 200-period Simple Moving Average (SMA) on the 4-hour chart, to maintain bullish momentum. If the pair manages to clear this resistance, a move towards 151.00 is possible, with further upside potential toward the monthly peak around 151.30.
On the downside, the immediate support lies near the 149.30 level, with a further drop opening the door for a deeper pullback toward the 148.60-148.55 zone. A decisive break below these levels could accelerate the fall towards the 148.00 mark and further towards the 147.30 region.
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