Japanese Yen Remains Under Pressure Amid Weak Economic Data and Market Sentiment.
The Japanese Yen (JPY) continues to weaken against the US Dollar (USD) for the third consecutive day on Monday, as weaker economic data and positive market sentiment weigh on the currency. The disappointing Japanese Purchasing Managers’ Index (PMI) has added further pressure on the Yen, while the upbeat mood in global equity markets is reducing demand for safe-haven assets like the JPY.
However, expectations that the Bank of Japan (BoJ) will continue raising interest rates in the coming months could limit further depreciation of the Yen. In contrast, the US Federal Reserve (Fed) expected to cut interest rates later in the year, creating a policy divergence that could influence the future movement of the USDJPY pair.
Weak Japanese PMI Data Weighs on the Yen.
One of the main reasons behind the recent weakness of the Japanese Yen is the disappointing March PMI data. The Au Jibun Bank Japan Manufacturing PMI declined to 48.3 in March 2025, down from 49.0 in February. This marks the ninth consecutive month of contraction and the weakest reading since March 2024.
In addition, the Japanese service sector, which had previously shown resilience, also lost momentum. The Service PMI contracted for the first time in five months, indicating that economic activity is slowing across multiple sectors.
A decline in business confidence also noted, with the overall business outlook slipping to its lowest level since August 2020. These weak data points have created concerns about Japan’s economic recovery, leading to a further decline in the Yen.
Positive Market Sentiment Reduces Demand for the Safe-Haven Yen.
Another factor dragging down the Japanese Yen is the improved risk appetite among investors.
Over the weekend, reports suggested that Donald Trump is planning a more targeted approach to tariffs set to take effect on April 2, 2025. This has eased fears of a major trade disruption, boosting investor confidence and reducing demand for safe-haven currencies like the Yen.
Global equity markets are in a positive mood, further reducing the appeal of the JPY, which is often used as a safe-haven asset during times of uncertainty.
When investors feel confident about the global economy, they tend to move away from safe-haven currencies like the JPY and invest in higher-yielding assets, leading to a decline in the Yen’s value.
Bank of Japan’s Hawkish Outlook Could Limit Yen Losses.
Despite the Yen’s recent weakness, the Bank of Japan (BoJ) is expected to take a hawkish stance on monetary policy, which could limit further losses in the currency.
Japan’s annual spring labor negotiations revealed that companies agreed to strong wage hikes for the third consecutive year. This wage growth could fuel inflation, pushing the BoJ to raise interest rates further.
Inflation in Japan remains above the BoJ’s 2% target, making it more likely that the central bank will tighten monetary policy.
BoJ Governor Kazuo Ueda recently stated that the central bank needs to act before it is too late. He emphasized that achieving a 2% inflation target is crucial for the BoJ’s credibility and that monetary policy will be adjusted as needed.
Similarly, BoJ Deputy Governor Shinichi Uchida reinforced that the BoJ will raise interest rates if the economic and price outlook supports it. The central bank will continue monitoring financial markets and global economic conditions before making policy adjustments.
The expectation of more BoJ rate hikes provides some support for the Yen, preventing a more significant depreciation against the USD.
US Federal Reserve’s Policy Outlook Caps USDJPY Gains.
On the other hand, the US Federal Reserve’s monetary policy stance is expected to cap gains in the USDJPY pair.
The Fed recently revised its inflation projection slightly higher, but it maintained its forecast for two 25 basis points rate cuts by the end of 2025.
While the USD has seen a modest recovery from multi-month lows, the expectation of Fed rate cuts is limiting the currency’s upside.
The BoJ and Fed’s diverging monetary policies create an interesting dynamic:
The BoJ is moving toward interest rate hikes, which is typically positive for the Yen.
The Fed is expected to cut rates, which should reduce demand for the USD and help stabilize the USDJPY pair.
This divergence may prevent USDJPY from rising too much, even though the Yen is currently weak due to market sentiment and poor economic data.
Upcoming Key Economic Data to Watch.
Traders and investors will closely monitor upcoming economic data for further clues on the direction of the Japanese Yen and US Dollar.
Later this week, the US will release its flash PMI data and several speeches from FOMC (Federal Open Market Committee) members.
The most important releases will be Tokyo’s Consumer Price Index (CPI) data and the US Personal Consumption Expenditure (PCE) Price Index on Friday.
If Japanese inflation remains strong, it could further boost expectations of BoJ rate hikes, supporting the Yen.
Conversely, if US inflation data surprises to the upside, it could delay Fed rate cuts, giving the USD some support.
These economic reports will play a crucial role in shaping the next moves for the USDJPY pair.
Conclusion: What’s Next for the Yen?
The Japanese Yen remains under pressure due to a combination of weak economic data and strong market risk sentiment. However, expectations of future BoJ rate hikes are preventing a major sell-off in the currency.
The BoJ-Fed policy divergence is likely to continue influencing the USD/JPY pair in the coming months:
If Japan’s inflation and wage growth remain strong, the BoJ will likely raise rates, supporting the Yen.
If the Fed moves forward with rate cuts, the USD could weaken, preventing the USDJPY pair from rising too much.
For now, traders will focus on key economic data releases to assess the next direction for the Japanese Yen and US Dollar.
