USD/JPY surpasses 161.00 on BoJ’s uncertainty

Despite the Japanese Yen’s extreme weakening, the USD/JPY remains firm above 161.00. With the Yen weakening, the BoJ anticipates tightening policy much more. The US dollar is affected by the weak US Manufacturing PMI.

The USD/JPY pair moves up above 161.00 during the New York session on Monday. Amidst ambiguity surrounding the Bank of Japan’s policy stance, the asset appreciates more when the Japanese Yen declines. The weak Japanese Yen is increasing inflationary pressures, and recent minutes of the BoJ policy meeting revealed that officials supported tightening policy even further.

The Japanese yen’s simple devaluation has driven up import prices while increasing the competitiveness of exports. Investors seem to be uncomfortable with the growing rumours of more rate hikes because they believe that the wage-growth spiral will be the cause of future policy tightening.

Amidst the Yen’s decline to a multi-decade low versus the US Dollar (USD), there is also a great expectation of Japan’s involvement in the foreign exchange market. The government of Japan has issued warnings about a covert intervention to counter swift, unilateral FX changes.

In the meantime, the dismal June US ISM Manufacturing PMI data is putting pressure on the US dollar. Unexpectedly, the Manufacturing PMI, which measures activity in the factory sector, dropped to 48.5. From the previous publication of 48.7, economists predicted that manufacturing activity would increase to 49.1. In manufacturing, a value below the 50.0 threshold is seen as a contraction.

The Prices Paid index, which measures the prices paid for inputs including labour and raw materials, increased more slowly than expected to 52.1 from expectations of 55.9 and the previous release of 57.0, which also contributed to a decline in inflation in the manufacturing sector. A drop in prices paid indicates that the pressure on prices may be lessening. This will raise anticipations for an early Federal Reserve rate cut.