USD/JPY extends gains as strong US PMI offsets softer CPI data

• USD/JPY rises for the sixth straight day as upbeat US PMI data lifts the Greenback.
• US S&P Global Composite PMI jumps to 54.8, signaling the strongest private-sector growth in three months.
• Soft US CPI data keep the Fed on a gradual easing path, with markets pricing another cut at the October 29-30 monetary policy meeting.

The Japanese Yen (JPY) remains under pressure against the US Dollar (USD) on Friday, with USD/JPY trading around 152.80, up for the sixth straight day. The Greenback rebounded sharply after a brief dip triggered by softer-than-expected US Consumer Price Index (CPI) data, as upbeat business activity readings from the United States (US) helped the Greenback regain footing.

The S&P Global Flash Composite Purchasing Managers Index (PMI) for October rose to 54.8, up from 53.9 in September, marking the strongest pace of private-sector expansion in three months.

The Services PMI surged to 55.2 from 54.2, while the Manufacturing PMI edged higher to 52.2 from 52.0, signaling broad-based strength across sectors. The report noted robust domestic demand and the largest rise in new business so far this year, offsetting export weakness amid ongoing tariff concerns.

Elsewhere, consumer data disappointed. The University of Michigan (UoM) survey showed that consumer sentiment weakened in October, with the headline index falling to 53.6 from 55.0 in September and the Consumer Expectations Index slipping to 50.3 from 51.2. Meanwhile, inflation expectations were mixed, with the 1-year outlook holding steady at 4.6%, while the 5-year measure edged up to 3.9% from 3.7%.

Earlier on Thursday, data from the US Bureau of Labor Statistics (BLS) showed that the CPI rose 0.3% MoM in September, missing the 0.4% forecast and easing from August’s 0.4%. On a yearly basis, headline inflation rose 3.0%, below the 3.1% forecast and slightly above 2.9% in August. The Core CPI, which excludes food and energy, also rose 0.2% MoM and 3.0% YoY, both softer than expected.

The soft inflation data supported expectations that the Federal Reserve (Fed) will maintain its gradual easing path after September’s first rate cut, with markets now pricing in another 25-basis-point (bps) rate cut at the October 29-30 monetary policy meeting, followed by a further reduction in December.

Meanwhile, in Japan, the Yen’s weakness persisted even as domestic inflation showed signs of firming. Both headline and core CPI rose to 2.9% in September from 2.7% in August, marking the first acceleration since May. The data come as speculation grows that Prime Minister Sanae Takaichi will unveil a major stimulus package next month to support households and businesses. Finance Minister Katayama hinted that Tokyo may need to issue additional government bonds to fund the extra budget, saying, “it can’t be helped if it comes to that.”