Japan posts mixed PMIs, Tokyo inflation expected to rise

[Ben Graham]

The Japanese yen posted gains earlier but failed to consolidate. In the European sesssion, USD/JPY is trading at 146.57, up 0.07%. Earlier, the yen strengthened to 145.83, its highest level since July 10.

Japan's services expands but manufacturing contracts

Japan posted mixed PMIs for July. Services expanded for a fourth consecutive month, rising to 53.5 from 51.7 in June and easily beating the forecast of 51.3. This marked the fastest pace of growth since February. Still, employment rose slowly and exports declined due to the uncertainty over US trade policy.

The manufacturing sector reverted back to contraction after marginal expansion of 50.1 June. The reading of 48.8 missed the forecast of 50.2 and marked the lowest level in three months. The decline in output was driven by weaker exports as businesses remained cautious due to trade tensions.

Markets cheer US-Japan agreement

The financial markets cheered the news of a US-Japan trade agreement after months of tough negotiations. Under the deal, most Japanese products will be subject to a 15% tariff, the best deal that a nation with a trade surplus with the US has negotiated with Washington. Japan has agreed to purchase more US rice and invest up to $550 billion in the US.

Japanese stock markets hit a 1-year high after the news and Bank of Japan Deputy Governor Shinichi Uchida said that the deal would reduce uncertainty and hinted at another rate cut before the end of the year.

Japan releases Tokyo Core CPI, one of the BoJ's preferred inflation indicators, on Friday. In June, Tokyo Core CPI slipped to 3.1% y/y, down sharply from 3.6% in May, the first slowdown since February. The downward trend is expected to continue, with a consensus of 3.0%.

USD/JPY Technical

• USD/JPY is testing resistance at 146.62. Above, there is resistance at 147.17
• 1.4602 and 145.52 are the next support levels

USDJPY 1-Day Chart, July 24, 2025

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