The manufacturing sector in Japan employs more than 10 million people, equivalent to about 8% of the country’s total population. It is responsible for more than 10% of the total GDP. Its manufactured products like Toyotas and Hondas are used around the world.

According to Markit and au Jibun bank, the manufacturing sector made a good progress in July as the country continued to reopen. The headline manufacturing PMI rose to 45.2 in July, up from 40.1 in the previous month. A PMI reading of below 50 usually shows that a sector is in contraction. Still, the number was far higher than the 11-year low of 38.4 seen in April.

The data showed that manufacturing volumes dropped at the slowest pace in five months. Similarly, new orders fell to the smallest degree since February. Tim Moore of Markit said: “Looking at output trends by market group, consumer goods fared better than the rest of the manufacturing sector. Production of consumer goods was close to stabilisation in July, despite a headwind from weaker orders from abroad.”

Increasing case numbers of COVID 19 in Japan’s largest cities threaten jobs and home consumer spending. Prime Minister Shinzo Abe is already facing a budget deficit after pledging about $ 2 trillion in stimulus, but this recovery could force his administration to spend more. The government said last week that it did not see the opportunity to balance the budget before the end of March 2030.

According to the Q1 GDP data. The numbers showed that the economy shrank by 2.2% in the first quarter compared to the first three months of 2019. This data came two weeks before the first preliminary second-quarter GDP data. Analysts believed that the economy shrank by about 20% in the second quarter which will be the worst slowdown since 1955. This puts pressure on the Yen.

USD/JPY 4 Hour Chart:

Support: 104.72 (S1), 103.52 (S2), 102.85 (S3).

Resistance: 106.59 (R1), 107.26 (R2), 108.46 (R3).

The strong manufacturing PMI data from Japan made USD/JPY pair to slightly decline but the pair also reacted to relatively strong Q1 GDP data from Japan. We expect a bullish trend for the pair.