|

Japanese Yen: Inflation signals strengthen – Commerzbank

Volkmar Baur at Commerzbank highlights solid Japanese activity data, with the manufacturing PMI at 54.8 and the Tankan business conditions index at its highest since 2003. He stresses that Tankan output price expectations have been a reliable inflation indicator, and their recent rise suggests the Bank of Japan may need to consider faster rate hikes, which would support the Japanese Yen.

Tankan hints at tighter policy

"Sentiment in the Japanese economy appears to be solid. The Purchasing Managers’ Index (PMI) for the manufacturing sector was confirmed yesterday at a strong 54.8 points (the flash estimate was 54.9)."

"And in the Bank of Japan’s broader Tankan survey, which covers more companies, the diffusion index for business conditions remained unchanged from the first quarter at 18. This is the highest level since 2003."

"However, the survey also contains a warning for the Bank of Japan. This is because the output prices sub-component among large manufacturing firms has consistently been a very good indicator of inflation in recent years. Only in 2014, when a sales tax hike artificially raised the consumer price index, was there a significant divergence."

"The recent rise in the subcomponent - which contrasts with the recent decline in CPI - should therefore give the central bank pause for thought."

"With sentiment indicators at high levels and price indicators in a dangerous range, it might be time for the Bank of Japan to consider slightly faster interest rate hikes after all. The JPY would certainly appreciate that as well."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD accelerates the decline below 0.7000

The late rebound in the Greenback has prompted the AUD/USD’s selling pressure to gather extra steam on Wednesday, sending spot to the mid-0.6900s for the first time since late July. In addition, inflation figures in Oz failed to surprise markets, leaving the pair vulnerable to extra weakness. On Thursday, the focus of attention on the domestic calendar will be on the release of the trade balance results in August.

USD/JPY stays weak below 157.00 amid Japanese intervention risks

USD/JPY keeps losses below 157.00 in the Asian session on Wednesday, as hawkish BoJ expectations, along with intervention risks, underpin the Japanese Yen, countering dismal domestic factory output and retail sales data. Meanwhile, a broad US Dollar retreat also collaborates to the pair's downside.

Gold meets resistance just above $4,200

Gold now makes a U-turn and recedes toward the $4,150 region per troy ounce on Wednesday. Indeed, the precious metal fades the earlier move past the key $4,200 yardstick and retreats marginally as the US Dollar trims part of its daily losses amid mixed US Treasury yields.

Bitcoin and Gold Outlook: BTC recovers $84K, XAU slips amid softer US PCE
Bitcoin (BTC) gains traction, rising above $84,000 on Wednesday as buyers return after softer-than-expected United States (US) inflation data. The Crypto King marks a second straight day of gradual recovery, building on the demand area between $82,000 and $83,000. Gold (XAU/USD), meanwhile, slides toward $4,100 after being rejected at the daily high of $4,219.
The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025, but a fresh inflation shock in the Eurozone could give the Euro an unexpected lifeline. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082. The decline reflects a powerful combination of US Dollar strength, geopolitical uncertainty and renewed concerns about Europe's exposure to higher energy prices.

The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025, but a fresh inflation shock in the Eurozone could give the Euro (EUR) an unexpected lifeline. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082.