The Japanese yen (JPY) held its ground against the US dollar (USD) on Monday, trading in a narrow range amid muted volatility as Japanese markets remained closed for a public holiday.
At the time of writing, USD/JPY was little changed around 154.18, hovering close to its eight-and-a-half-month high as investors digested the latest US manufacturing data.
US factory activity contracts for eighth consecutive month
The greenback’s recent momentum faded after data from the Institute for Supply Management (ISM) showed that US manufacturing activity contracted for the eighth straight month in October.
The Manufacturing PMI dropped to 48.7, missing forecasts of 49.5 and pointing to continued weakness in both output and new orders. Sub-components revealed production easing to 48.2, a modest uptick in employment to 46, and a decline in prices paid to 58.
A separate survey by S&P Global offered a more positive view, with the final US Manufacturing PMI improving to 52.5 in October from 52 in September, suggesting that factory activity remains resilient in some sectors.
DXY trims gains as traders reassess Fed outlook
Following the data, the US Dollar Index (DXY) which tracks the greenback against a basket of six major peers eased to around 99.83 after briefly touching 99.99 earlier in the session. Despite the mild pullback, the dollar remains underpinned by the Federal Reserve’s (Fed) relatively hawkish stance following last week’s 25-basis-point rate cut.
Market participants have sharply reduced expectations for additional policy easing. The CME FedWatch tool now shows a roughly 65% probability of another rate cut in December, down from 94% a week ago, as traders factor in the Fed’s cautious tone on inflation and growth.
BoJ remains patient amid policy uncertainty
In Japan, the Bank of Japan (BoJ) kept its policy rate unchanged at 0.50% for the fifth straight meeting last week.
Governor Kazuo Ueda reiterated that the central bank needs more evidence of sustained wage growth before considering further normalization. He also noted that policymakers want to “take a little longer to see how US tariff impacts would affect the Japanese economy.”
Data releases to guide near-term sentiment
Looking ahead, traders will closely monitor private-sector data as the ongoing US government shutdown delays key official economic releases.
The JOLTS Job Openings report on Tuesday and the ADP Employment Change data on Wednesday will serve as important indicators of labor market health.
In Japan, attention will turn to the Jibun Bank Manufacturing PMI for October, due Tuesday, followed by the BoJ’s Monetary Policy Meeting Minutes on Wednesday, which could provide further insight into the central bank’s policy direction.
