USD/JPY: Japanese yen points to 104 as manufacturing PMI disappoints

on Oct 23, 2020
Updated: Jun 15, 2024
  • The USD/JPY price declined even after the disappointing data from Japan.
  • Manufacturing and services PMIs started the fourth quarter below 50.
  • Headline consumer inflation rose to 0% while core CPI fell to -0.3%.

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The USD/JPY price declined in overnight trading even after disappointing inflation and PMI data from Japan. It is trading at 104.70, which is lower than yesterday’s 104.95.

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Japanese yen
USD/JPY drops even after disappointing data

Japan manufacturing sector under pressure

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Japan is a well-known manufacturing country. Some of its biggest brands like Toyota, Nissan, and Mitsubishi are all in the sector.

Unlike in other countries like China and the United States, the country’s manufacturing sector is under intense pressure. According to Markit, the manufacturing PMI increased from 47.7 in September to 48.0 in October. While that was an improvement, it is still below 50, which is a sign that manufacturers are still struggling. Also, the PMI has been below 50 since January 2019.

According to the report, manufacturers reported weaker decline in output, new orders, new export orders, backlogs, and stocks of finished goods. They nonetheless reported higher input prices. In the report, Bernad Aw, of Markit said:

“The Japanese private sector started the fourth quarter on a weak footing, with business activity shrinking further in October. New business inflows continued to fall, though the rate of decline was the slowest in the current sequence of contraction. External demand continued to weaken.”

The Japanese government, under Yoshihide Suga, has noted the slow recovery and is planning another round of stimulus. So far, the government has launched stimulus worth more than $3 trillion, which has seen the public debt reach unprecedented levels. According to the World Bank, the country now has a debt to GDP ratio of more than 236%.

The service sector also continued to struggle. The PMI came in at 46.9, a drop from the previous 46.6. The report attributed this to a sharp decline in output as new orders declined. The labour market made a modest recovery.

Japan is also going through a period of weak inflation. According to the statistics office, the headline CPI declined from 0.2% in August to 0.0% in September. The core CPI, which excludes the volatile food and energy prices declined to -0.3%.

USD/JPY technical outlook

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USD/JPY technical

The USD/JPY price is trading at 104.70. On the daily chart, the price is below the 25-day and 15-day exponential moving averages while the Relative Strength Index (RSI) has fallen below 40. Also, the price seems to be forming a descending triangle pattern that is shown in green. The base of this triangle is at the psychologically important level of 104.00. Therefore, in the near term, I suspect that the pair will continue falling as bears target the support at 104.