The USD/JPY pair has risen close to 153.00, achieving its sixth straight daily increase, driven by robust U.S. PMI data, easing inflation, and ongoing yen depreciation in the context of renewed fiscal expansion in Tokyo. The recent shift reinforces the dollar’s robust performance this quarter, as the pair hovers near multi-month peaks at 152.80–153.10, indicative of the differing policy paths of the Federal Reserve and the Bank of Japan.
The recent rise of the dollar coincided with the S&P Global Composite PMI increasing to 54.8 in October from 53.9, indicating the most robust U.S. private-sector growth in the past three months. The Services PMI increased to 55.2, while the Manufacturing PMI rose to 52.2, with both figures surpassing forecasts. The data confirmed the fundamental strength of the U.S. economy, providing a counterbalance to the weaker Consumer Price Index figures. Headline CPI rose 0.3% MoM, slightly below the 0.4% forecast, while annual inflation moderated to 3.0%, down from 3.1% expectations. The core CPI recorded a 0.2% month-over-month increase, indicating stable underlying price pressures.
The interplay of robust business activity alongside declining inflation has bolstered anticipations that the Federal Reserve will persist in its methodical approach to rate cuts. The current market expectations indicate a 25 basis-point reduction at the upcoming FOMC meeting on October 29–30, with an additional cut anticipated in December, resulting in a cumulative total of 75 basis points for 2025. Even with the softer CPI, the PMI rebound indicates that the U.S. economy is capable of handling lower rates without causing a slowdown, which in turn keeps Treasury yields high and maintains demand for the dollar. In Japan, the yen’s persistent weakness remains tied to fiscal and policy divergence. In September, the headline and core Japanese CPI increased to 2.9% YoY, up from 2.7% in August, indicating the first rise since May. Despite increasing fiscal pressures, the Bank of Japan remains committed to its ultra-loose monetary policy, showing reluctance to implement any rate hikes.
Prime Minister Sanae Takaichi has unveiled a ¥13.7 trillion ($92.19 billion) stimulus package, surpassing last year’s proposal. This initiative is designed to support households and enhance small business operations via fuel tax reductions, subsidies, and local grants. While the measures aim to mitigate the effects of inflation, they may inadvertently lead to additional depreciation of the yen by increasing Japan’s debt burden and diminishing the real yield advantage compared to the U.S. dollar. Finance Minister Katayama recognized the possible necessity for new government bond issuance to finance the package, highlighting a focus on fiscal prioritization rather than currency stability. Market participants currently anticipate that the USD/JPY cross will maintain support above 151.60, given that Japanese authorities appear willing to accept additional weakness in order to safeguard domestic growth momentum.