Japanese stocks closed lower on Thursday, with the Nikkei 225 losing around 0.58%. The main pressure came from the paper, transport, and communications sectors, which weighed on the index and pushed investors toward caution, despite some individual stocks posting strong gains in other sectors.
UBS revised its forecasts for the USD/JPY pair, raising its near-term targets while maintaining its overall view that the trend will remain downward through 2026. The bank now expects the pair to reach 142 by the end of 2025 instead of 140, while lifting its March and June 2026 targets to 140 and 138 respectively, and introducing a new September 2026 target at 136.
The institution believes the yen’s moves will largely hinge on the divergence in monetary policies between the Federal Reserve and the Bank of Japan. While the Fed is expected to begin a rate cutting cycle, the BOJ is seen continuing with gradual hikes, supporting the yen in the medium term. However, UBS noted that current market conditions such as heavy net-long positioning in the yen and favorable carry dynamics could limit the speed of appreciation. The current level near 147 is also above the fair value estimated around 140. The report further cautioned about political risks, noting that if Sanae Takaichi, known for dovish policies, were to succeed Shigeru Ishiba as Prime Minister, it could weaken the yen and disrupt the projected trajectory.
Preliminary data for August’s manufacturing PMI showed notable improvement, rising to 49.9 points from 48.9 in July, beating forecasts of 49.2. Although still below the 50 threshold, it indicated the sector is edging closer to expansion. This improvement was partly supported by the recent U.S. Japan trade agreement, which imposed tariffs of 15% on Japanese exports instead of the previously planned 25%, offering some relief to manufacturers and boosting sentiment.
According to S&P Global analysts, stronger output was the key driver behind the PMI increase, while sales remained under pressure, posing a challenge to sustaining recovery. On the other hand, the services PMI fell to 52.7 from 53.6 in July, but still reflected solid expansion backed by resilient domestic demand. As a result, Japan’s composite PMI rose to 51.9 from 51.6, pointing to a relatively balanced economy, though industry still needs further support from exports and demand.
The U.S. dollar traded in a narrow range on Thursday, holding near a one-week high as investors awaited the Jackson Hole symposium. The Dollar Index rose 0.1% to 98.114, supported by the minutes of the Fed’s latest meeting, which showed most members favored keeping rates steady at 4.25%–4.50%, while concerns over inflation and the labor market persisted. All attention is now on Fed Chair Jerome Powell’s upcoming speech, expected to shape the next steps for monetary policy.
In currency markets, the euro rose to 1.1656 on upbeat eurozone PMI data, while the British pound climbed to 1.3466 after stronger U.K. activity figures. In Asia, the dollar advanced to 147.55 against the yen after data showed factory activity contracted at a slower pace, and it held steady against the yuan at 7.1769 after the People’s Bank of China left rates unchanged. The Australian dollar slipped to 0.6423, while the New Zealand dollar stabilized at 0.5822 following the RBNZ’s 25 basis-point rate cut.
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