Yen. Image Source: Pixabay

The Japanese Yen (JPY) remains under pressure against the US Dollar on Tuesday, with USD/JPY extending its advance for a third consecutive day. At the time of writing, the pair is trading around 148.30, easing slightly from its strongest level since August 1, marking fresh one-month highs earlier in the American session. Despite the pullback, the pair is still up 0.77% on the day, underpinned by broad Greenback strength.

In the United States, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers' Index (PMI) for August showed the sector remained in contraction, though conditions improved modestly from the previous month. New orders returned to expansion, but production and employment stayed weak, while input prices edged higher.

By contrast, the S&P Global survey signaled the strongest improvement in manufacturing operating conditions in more than two years, underscoring resilience in business activity despite lingering headwinds. The mixed readings left the Greenback lacking fresh momentum, with the US Dollar Index (DXY) holding below the four-day highs reached earlier in the session, hovering around 98.30.

Despite showing modest strength against its major counterparts, the Greenback remains broadly fragile. Firm expectations of an interest rate cut at the Federal Reserve’s (Fed) September 16-17 monetary policy meeting, alongside mounting concerns over the central bank’s independence, have capped upside momentum. Added to this are fiscal worries tied to the United States’ (US) swelling debt burden, which continues to weigh on long-term confidence in the US Dollar.

In Japan, recent data reinforced the Bank of Japan’s (BoJ) cautious stance. Tokyo’s core inflation slowed to 2.5% in August from 2.9% in July, while factory output slumped on weaker auto production and Retail Sales disappointed. Despite a tight labor market, domestic demand remains patchy, leaving policymakers wary of tightening too quickly. Speaking today, Deputy Governor Ryozo Himino said the BoJ should continue raising rates gradually but must remain alert to global risks, particularly the drag from US tariffs.

Looking ahead, Japan’s calendar remains light, leaving USD/JPY direction anchored to the U.S. economic docket. The main risk event will be Friday’s Nonfarm Payrolls report, which is expected to play a decisive role in shaping market expectations for the Federal Reserve’s September meeting. In the run-up, the ADP Employment Change and weekly Initial Jobless Claims on Thursday will also provide important signals for labor market momentum.

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