Signs of Economic Recovery in Japan
According to the latest PMI data, Japan's manufacturing activity in June expanded for the first time after 11 consecutive months of contraction. The preliminary manufacturing PMI rose from 49.4 in May to 50.4, indicating that the industry as a whole is beginning to recover, mainly due to a rebound in output and increased purchasing activity. Meanwhile, the services PMI rose from 51.0 to 51.5, with the composite PMI climbing to 51.4, marking a new high since February and reflecting the continued recovery in the service sector, particularly strong expansion in new local business.
However, external demand remains sluggish, with overseas new orders continuing to be weak, reflecting global macro uncertainties, particularly the ripple effects of U.S. tariff policies still affecting market expectations.
Concerns Behind the Yen's Weakness
Despite signs of warming in Japan's economic data, the yen has not appreciated. Market analysts generally believe that the interest rate differential between Japan and the United States remains the main factor suppressing the yen's exchange rate. The Federal Reserve currently maintains high interest rates, while the Bank of Japan continues its stance of loose policies, keeping the yen weak against the dollar. Additionally, the rise in international market risk appetite has also reduced demand for the yen as a safe-haven asset.
Unless upcoming data on Japan's core CPI is significantly favorable or the Bank of Japan changes its policy stance, the yen is likely to face structural depreciation pressure.
U.S. Inflation Pressure Resurfaces as PMI Indicates Price Surge
In the United States, June PMI data indicates that manufacturing continues to expand robustly, with the preliminary Markit manufacturing PMI at 52, the highest since February. Although the services PMI fell to 53.1, it still exceeded market expectations.
Notably, inflation pressure has risen significantly. Procurement costs for manufacturing materials surged due to tariffs, pushing the purchasing price index to 70, the largest increase in nearly four years. The selling price index also rose to 64.5, reflecting that companies are actively passing costs onto consumers.
The chief economist at S&P Global stated that U.S. businesses are feeling the broad-based price pressures triggered by tariffs, and the service sector also faces the transmission risks of rising costs in labor, fuel, and other areas.
Focus Shifts to Powell's Testimony and Japan's CPI
The market's next focus will be on the core CPI annual rate data to be released by the Bank of Japan on Tuesday (13:00 Beijing time) to see if inflation provides room for central bank policy adjustments. Meanwhile, Fed Chair Powell will testify in Congress in the evening, where investors will look for further clues on the direction of interest rate policy.
In the current climate of global inflation and trade policy uncertainty, the divergence in policy between Japan and the United States will continue to be a decisive factor for exchange rates and market performance.
