USD/JPY trades flat near multi-month highs as US Dollar loses steam post-ISM

The Japanese Yen (JPY) treads water against the US Dollar (USD) on Monday amid subdued volatility, as Japanese markets are closed for a public holiday. At the time of writing, USD/JPY is little changed around 154.18, hovering near its eight-and-a-half-month highs as traders digest the latest US manufacturing data.

The Greenback’s recent rally lost momentum after the Institute for Supply Management (ISM) reported that US factory activity contracted for the eighth straight month in October. The Manufacturing PMI fell to 48.7, below expectations of 49.5, signaling persistent weakness in output and new orders. Sub-indices showed Production dropping to 48.2 and Employment rising modestly to 46, while Prices Paid eased to 58.

A separate report from S&P Global offered a slightly brighter picture, with the final US Manufacturing PMI improving to 52.5 in October from 52 in September.

Following the data, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is drifting lower, trading around 99.83, paring early gains after briefly touching 99.99 earlier in the day.

Despite the mild pullback, the Greenback remains broadly supported by the Federal Reserve’s (Fed) hawkish tilt following last week’s 25-basis-point rate cut. Traders have scaled back expectations for further easing, with the CME FedWatch tool showing the odds of a December rate cut around 65%, down sharply from 94% a week earlier.

In Japan, the Bank of Japan (BoJ) left interest rates unchanged at 0.50% for the fifth consecutive meeting last week. Governor Kazuo Ueda reiterated that the central bank needs to see clearer evidence of sustained wage growth before considering further policy adjustments, adding that the BoJ wants to “take a little longer to see how US tariff impacts would affect the Japanese economy.”

Looking ahead, traders will focus on private-sector data for near-term guidance as the ongoing United States (US) government shutdown continues to delay major official releases. The JOLTS Job Openings on Tuesday and the ADP Employment Change on Wednesday will serve as key proxies for labor market conditions.

In Japan, the Jibun Bank Manufacturing PMI for October, due Tuesday, will shed light on factory activity, followed by the Bank of Japan’s (BoJ) Monetary Policy Meeting Minutes on Wednesday.