Yen Softens On Weak Japan PMIs Disappoints, Markets Tread Water Elsewhere

Yen weakened broadly in a relatively quiet Asian session, dragged down by disappointing PMI data. The worrying sign is that both manufacturing and services sectors are now in contraction, pointing to growing signs of weakness in Japan’s economy. Despite expectations that BoJ will raise interest rates further this year, supported by strong wage growth, today’s data raises fresh doubts about the timing and viability of the central bank’s tightening path.

The weakening economic backdrop also arrives at a delicate time for Japan, with the specter of new US tariffs looming. Downside risks from a global trade war could weigh on Japan’s export-dependent economy. Rising input costs and shaky external demand may ultimately delay further rate normalization.

Adding to the uncertainty, confusion over the shape and scope of US President Donald Trump’s “Liberation Day” tariffs continues to swirl. A report from the Wall Street Journal over the weekend suggested the White House is set to “narrow” its approach. The current thinking appears to be a scaled-back plan that will still include reciprocal tariffs but may delay industry-specific measures. This may align with Trump’s previous remark that there would be “flexibility”.

Until the April 2 announcement materializes, traders are likely to remain in a wait-and-see mindset, with many choosing to reduce exposure amid headline risk. Market movements in this environment may be temporary and driven more by short-term positioning than conviction. The broader direction for currencies and equities may not be defined until the full scope of the tariffs and their retaliations are well-understood.

For now, Canadian and Australian Dollars are leading the day, together with Euro. Yen and Kiwi are lagging, with Swiss Franc also on the weaker side. Dollar and Sterling are positioning in the middle.

Technically, AUD/CAD’s rebound from 0.8853 (Jan low) is so far seen as a corrective move based on its structure. Break of 0.8951 support will argue that the correction has completed. Fall from 0.9375 would then be ready to resume through 0.8853 to 61.8% projection of 0.9375 to 0.8853 from 0.9128 at 0.8805 next.

In Asia, at the time of writing, Nikkei is down -0.01%. Hong Kong HSI is down -0.21%. China Shanghai SSE is down -0.49%. Singapore Strait Times is up 0.17%. Japan 10-year JGB yield is up 0.027 at 1.544.

BoJ’s Ueda reaffirms commitment to rate hikes despite market and financial pressures

BoJ Governor Kazuo Ueda told parliament today that the central bank remains committed to raise interest rate if underlying inflation is deemed to be approaching its 2% target.

He emphasized that BoJ’s objectives remain squarely focused on price stability, and that its approach to policy “would not be disturbed by considerations for the BoJ’s finances.”

Ueda’s remarks come as concerns mount over the BoJ’s balance sheet in light of interest rate hikes and volatility in equity markets.

BoJ estimated in December that if short-term borrowing costs were to rise to 2%, it could incur losses of up to JPY 2 trillion.

Additionally, Ueda noted that a 1000-point drop in the Nikkei 225 index would translate into a valuation loss of about JPY 1.8 trillion in its ETF holding.

While these figures highlight the scale of financial risks, Ueda’s insistence on prioritizing price stability signals that BoJ is prepared to weather market volatility in pursuit of its monetary policy mandate.

Japan PMI composite falls to 48.5, business confidence sinks to lowest since 2020

Japan’s private sector saw a sharp loss in momentum at the end of Q1, with PMI Composite falling from 52.0 to 48.5, marking the first contraction in five months. PMI Manufacturing dropped from 49.0 to 48.3, its lowest in a year and ninth consecutive month in contraction. More concerning was the steep decline in PMI services, which fell from 53.7 to 49.5 — the weakest reading since mid-2024.

According to Annabel Fiddes of S&P Global, the downturn was driven by a “fresh fall in service sector activity” and an accelerated decline in manufacturing. Firms pointed to “strong inflationary pressure had dampened sales”, with clients showing increasing hesitation to place orders.

The broader picture is one of growing pessimism. Japanese firms cited a host of structural and cyclical challenges — from persistent inflation and labor shortages to an aging population and deepening global trade uncertainty. As a result, business confidence for future activity fell to its lowest level since August 2020.

Australia’s PMI manufacturing jumps to 52.6, services rises to 51.2

Australia’s PMI Manufacturing surged to 52.6 from 50.4—marking a 29-month high—while PMI Services ticked up to 51.2 from 50.8. PMI Composite , which combines both sectors, rose to a 7-month high at 51.3.

Jingyi Pan of S&P Global Market Intelligence highlighted that the output growth was not only the strongest in seven months but also “broad-based” across both manufacturing and services. Despite a decline in export orders due to weather disruptions and weak global conditions, domestic demand rebounded impressively, pushing new orders to their highest growth rate in nearly three years.

However, the report also highlighted a notable dip in business confidence. Suppressed price increases may have helped support near-term demand. But “tariff uncertainty may continue to cast a shadow on output growth in the year ahead”.

Markets Eye Data Avalanche to Close Q1

The final week of Q1 will be marked by a flood of high-impact economic data from around the world, covering everything from PMIs to inflation and consumer sentiment. The central narrative across many regions will be the lingering uncertainty and fallout from the escalating tariff war, particularly between the US and its trading partners.

In the US, the spotlight remains squarely on how the trade war is affecting consumers and businesses. Consumer confidence will be critical, following a sharp deterioration since the beginning of the year due to tariff anxiety. Even more important will be whether this shift in sentiment is already impacting spending. Business PMIs, especially in the services sector, will be examined for hiring trends, while manufacturers may reveal pricing pressures and cost concerns as they brace for more tariffs.

Europe’s attention will be on whether recent optimism over Germany and the EU’s fiscal expansion is filtering into economic activity. Although the spending plan is still in its early stages, it could lift sentiment—particularly in manufacturing PMI data. Additionally, Germany’s Ifo business climate and GfK consumer confidence surveys will be closely watched for signs of a sustainable rebound.

The UK will deliver CPI and retail sales, two key indicators that could influence BoE’s policy path. However, barring a significant downside surprise in inflation, BoE is unlikely to deviate from its slow-and-steady approach — one cut per quarter.

In Japan, BoJ’s Summary of Opinions will offer critical insights into policymakers’ sentiment following last week’s rate hold. The focus will be on how optimistic they are about wage growth after strong Shunto results, as well as their assessment of risks posed by global trade tensions and spillovers into financial markets. The tone will be key in gauging how close BoJ is to delivering another rate hike.

Canada’s GDP print, while important, is likely too early to fully capture tariff effects. Australia’s monthly CPI will offer clues on the inflation trend, though not as complete as the quarterly update. RBA has made clear that February’s cut was not the start of an easing cycle, so it would take notable downside surprise to revive bets on more cuts in the near term.

Here are some highlights for the week:

• Monday: Australia PMIs; Japan PMIs; Eurozone PMIs; UK PMIs; US PMIs.
• Tuesday: BoJ minutes; Germany Ifo business climate;US house price index, consumer confidence, new home sales.
• Wednesday: Japan corporate service prices; Australia monthly CPI; UK CPI; Swiss UBS economic expectations; US durable goods orders.
• Thursday: Eurozone M3 money supply; US Q4 GDP final, jobless claims, goods trade balance, pending home sales.
• Friday: Japan Tokyo CPI, BoJ summary of opinions; Germany Gfk consumer sentiment, unemployment; UK Q4 GDP final, goods trade balance, retail sales; Swiss KOF economic barometer; Canada GDP; US personal income and spending, PCE inflation

USD/JPY Daily Outlook

Daily Pivots: (S1) 148.71; (P) 149.19; (R1) 149.79; More…

USD/JPY rises slightly today but overall outlook is unchanged. Intraday bias stays neutral first. Recovery from 146.52 is seen as a corrective move. In case of stronger rise, upside should be limited by 150.92 support turned resistance. On the downside, break of 148.17 support will bring retest of 146.52 first. Sustained trading below 61.8% retracement of 139.57 to 158.86 at 146.32 will resume the fall from 158.86 to 139.57 support.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.