USD/JPY eyes upside as Japan flash PMI slows across sectors in March

USD/JPY faces upward pressure as Japan's March flash composite PMI data revealed a broad-based cooling in economic momentum, potentially undermining the case for near-term Bank of Japan tightening. The services PMI eased to 52.8 from 53.8, while manufacturing PMI dropped more sharply to 51.4 from 53.0. Manufacturing output saw the steepest decline, falling to 51.8 from 54.2 in the prior reading. While both sectors remain in expansion territory above 50, the deceleration signals fading growth momentum in the Japanese economy. Adding to concerns, cost pressures continued to rise, creating a stagflationary dynamic that complicates the BOJ's policy outlook. The combination of slowing activity and persistent inflation inputs may lead the central bank to adopt a more cautious stance on further rate normalization. Traders should monitor upcoming BOJ commentary for guidance on the rate path. Near-term, the softening PMI data is JPY-negative, as reduced tightening expectations could weigh on the currency against its major counterparts, particularly the US dollar.