Japanese Yen slides after hawkish BoJ comments

The Japanese yen is sharply lower on Tuesday and has fallen to a two-week low. In the European session, USD/JPY is trading at 148.62, up 1.0% on the day.

BoJ Deputy Governor says rate hike coming

Bank of Japan Deputy Governor Ryozo Himino said on Tuesday that the central bank would raise rates if conditions were appropriate. Himino said there were "upside and downside risks for economy and inflation", citing the tight labor market and global economic uncertainty as upside inflation risks and tariffs and commodity prices as downward price risks.

Himino said that the impact of US tariffs could be "smaller or larger than expected" and the BoJ woul have to carefully assess the situation. The remarks reflect a genuine uncertainty over the tariffs, as US President Trump has been erratic is his trade policy. Japan and the US have reached a deal in which most Japanese products will be tariffed at 15%, but some sticking points remain, such as Japan's import of US rice.

Himino didn't provide any clues as to the timing of a rate hike but the markets are anticipating a hike in October or December. US Treasury Secretary Scott Bensen called out the BoJ in August, saying it had fallen behind the curve in the fight against inflation and needed to raise rates. Those hawish remarks raised expectations of a rate hike.

The deputy governor added that underlying inflation is still below the 2% target but it is rising and will hit the target. This is another hawkish signal from the BoJ that it plans to move towards normalization and a rate hike is only a question of timing.

ISM Manufacturing PMI expected to contract

The US will release ISM Manufacturing PMI later today. Manufacturing has been in the doldrums, with five straight readings below 50, which indicates contraction. The market estimate for August stands at 49.0, which would be an improvement from the July reading of 48.0, the weakest level since October 2024. The weak global economy and the impact of counter-tariffs on US goods continues to dampen manufacturing activity.

USD/JPY technical

• USD/JPY has pushed above resistance at 147.22 and is putting pressure on 147.83. The next resistance line is 148.31.
• 146.74 is providing support.