The USDJPY spiked on Thursday after the mixed business sentiment and manufacturing PMI data from Japan. The pair rose to a three-month high of 111.16, bringing the total gains from April 23rd to more than 3.45%.
Japan business sentiment
The Japanese economy has staged a relatively strong recovery this year helped by the relatively strong local and external demand. However, the country’s companies have continued to face the challenge of high costs and supply shortages of key components like chips.
The Bank of Japan (BOJ) published the latest Tankan survey data for the second quarter. The data showed that the country’s large manufacturers index rose from 5 in Q1 to 14. This was the highest reading since 2018. Similarly, the non-manufacturing index rose from -1 to 1. The two were relatively lower than the median estimate of 15 and 3.
Meanwhile, small businesses also continued doing well in the second quarter. The small manufacturing index improved from -13 to -7, while the small non-manufacturing index rose from -16 to -12. Further data revealed that companies continued to invest in their capital expenditure in the second quarter. The big industry and small industry CAPEX increased by 9.6% and 0.9%, respectively.
Most importantly, Japan’s diffusion index (DI) increased to 14 from 5 in the first quarter. This figure is calculated by subtracting the percentage of companies that see business conditions as being poor from the optimistic ones.
The USDJPY also reacted to the latest Japan manufacturing PMI data. According to Markit, the country’s manufacturing PMI declined from 53.0 in May to 52.4 in June. This drop was better than the median estimate of 51.5, even as input prices jumped at the fastest pace in a decade.
The decline of the PMI happened as Japanese companies slashed output at the fastest pace in the past five months. Still, more companies continued hiring employees as demand held steady.
As a result, analysts believe that the BOJ will leave its accommodative policies intact to support the economy. The bank has slashed interest rates to record lows and launched a big quantitative easing program.
US data ahead
The USDJPY will next react to the latest manufacturing PMI data from the United States. Analysts expect the data to show that the US manufacturing PMI by the Institute of Supply Management (ISM) retreated from 61.2 to 61.0, while that from Markit dropped to 62.0. In general, the US manufacturing sector has done better than the services industry, but it is also facing cost challenges.
The US will publish the latest initial jobless claims data on Thursday. Analysts see the initial claims falling from 411k to 390k and continuing claims falling from 3,390k to 3,382k.
The most important numbers will come out on Friday when the US publishes the latest non-farm payrolls. The numbers are expected to show that the economy added about 700k jobs in June, while the unemployment rate fell to 5.7%.
USDJPY technical analysis
The USDJPY pair rose to a three-month high of 111.16 after the latest Tankan sentiment data. The price is a few points below the upper side of the ascending channel shown in blue on the four-hour chart.
The pair is also being supported by the Exponential Moving Averages (15 and 25 EMA). Similarly, the price is above the Ichimoku cloud while oscillators have kept rising. Therefore, the pair will likely keep rising as bulls target the next resistance at 112.