Today’s Market Outlook
October 23, 2026
USD/JPY Rebounds from the Low 156s; Focus on Renewed Equity Weakness and U.S. PMIs
Market Overview
The yen strengthened on risk aversion earlier today, but buying pressure eased as equities recovered.
USD/JPY fell to 156.08 during the Tokyo morning before rebounding into the 157s. It was bought back to 157.16 early in the London session.
The Nikkei 225 fell by more than 1,400 points at one stage, but recovered over 1,200 points from its low during the afternoon session before closing. The stabilization in equities, along with profit-taking after the yen’s rapid gains, appears to have supported USD/JPY.
However, concerns about excessive investment in AI and credit risk remain. In overseas trading, the key question is whether the yen’s rally has merely paused or whether the rebound in equities will lead to further buying of USD/JPY and other yen crosses.
USD/JPY
USD/JPY has rebounded by around one yen after falling to 156.08.
The pair’s failure to break below 156 suggests a short-term pause in the decline. However, its recovery has been sluggish in the low 157s, so it is too early to conclude that the downtrend has reversed.
The key near-term level is around 156.80. This area acted as support from the middle of the Tokyo session onward. If the pair falls below it, 156.08 and then 156 could be tested again.
If buying continues, the first resistance is around 157.36, which has capped gains since early in the European session yesterday. A break above that level would bring 157.50 into focus, followed by the 21-day moving average around 157.88 and the 158 level.
For now, USD/JPY is likely to trade mainly between 156.50 and around 157.50. However, renewed equity-market weakness could push it below this range.
Japanese Inflation and Government Comments
Japan’s national CPI for September, released today, showed headline and core inflation both at 2.1% year over year, in line with market expectations.
Headline inflation rose from 1.9% previously, while core inflation—which excludes fresh food—rose from 1.7%. Because the figures matched forecasts, they offered limited new information to the market.
Comments from Economic and Fiscal Policy Minister Kiuchi, who urged caution in declaring an end to deflation, weighed on the yen. Markets appear to have interpreted the government’s preference for a cautious approach to avoiding a return to deflation as relevant to expectations for further Bank of Japan rate hikes.
However, government comments alone will not determine the BOJ’s decision. With next week’s policy meeting approaching, the yen remains vulnerable to sharp moves as market expectations shift.
Equity Markets and Risk Aversion
Equities continue to be the main driver of the yen today.
AI-related stocks fell in the U.S. yesterday, and selling spread to Tokyo. However, the Nikkei’s sharp recovery later in the session temporarily reduced demand for the yen.
The focus tonight is whether the recovery in U.S. equity futures carries over into regular trading. If selling in AI-related shares spreads to other sectors, yen buying could pick up again.
Conversely, if U.S. equities stabilize, investors may take profits on yen positions ahead of the weekend. The durability of USD/JPY’s rebound will depend on whether the recovery in share prices continues.
The Euro and European PMIs
The euro is struggling to make gains after weak PMI data.
The euro came under pressure when France’s preliminary October PMI readings fell short of expectations, and EUR/USD briefly dipped below 1.1200.
The subsequent eurozone-wide PMI readings also missed expectations in both manufacturing and services. However, additional euro selling was limited, and the pair has since traded around 1.1200.
It is worth watching that the euro’s decline has not accelerated despite a series of weak data releases. EUR/USD is likely to remain focused on the 1.1200 level for now; sustained trading below it could add to the pressure on the pair.
For EUR/JPY, the area around 176 is key. Even if USD/JPY recovers, weakness in EUR/USD could limit any rebound in the euro cross.
Sterling and UK PMIs
Sterling is facing profit-taking after this week’s gains on stronger inflation data.
Early in the London session, GBP/USD fell from around 1.3390 to approximately 1.3371, as profit-taking combined with dollar buying linked to higher oil prices.
The UK’s preliminary October PMIs, released afterward, came in above market expectations for both manufacturing and services. Sterling’s reaction was modest, however, and GBP/USD traded around 1.3380.
After strong CPI data, the PMI figures also pointed to resilient activity. But with the positive data failing to accelerate buying, resistance around 1.3400 may remain in focus in the near term.
For GBP/JPY, the key question is whether the pair can hold above 210. Even with support from UK-specific factors, renewed risk-aversion-driven yen buying could put it under pressure.
U.S. Flash PMIs
The preliminary U.S. PMIs for October will be released at 14:45 London time.
- Manufacturing PMI: forecast 55.5; previous 55.9
- Services PMI: forecast 57.9; previous 58.8
Both are expected to decline from the previous readings, but remain above 50, the threshold separating expansion from contraction.
Stronger-than-expected results could reinforce the view that the U.S. economy remains resilient, supporting Treasury yields and the dollar. This could help USD/JPY extend its rebound.
If the data come in significantly below expectations, concerns about an economic slowdown could intensify, particularly alongside falling equities. Lower U.S. yields and renewed yen buying could send USD/JPY back toward its recent lows.
In addition to the headline readings, watch the balance between business activity, employment and price pressures.
Canadian Retail Sales
Canadian retail sales for August will be released at 13:30 London time.
Both headline and core retail sales are forecast to rise by 1.2% month over month, recovering from the previous month’s 0.7% decline.
A stronger-than-expected result could point to resilient consumer spending and support the Canadian dollar. If the recovery falls short of expectations, concerns about the Canadian economy could weigh on the currency.
Higher oil prices are generally supportive of the Canadian dollar, but that support can weaken if risk aversion or concerns about domestic growth dominate. Both retail sales and oil prices warrant attention.
University of Michigan Index and Weekend Positioning
The final University of Michigan Consumer Sentiment Index for October will be released at 15:00 London time. The forecast is 46.3, unchanged from the preliminary reading.
Alongside any revision to the index, watch changes in inflation expectations. If consumer sentiment is weak but inflation expectations remain high, the implications for monetary policy may be mixed.
Credit-rating reviews, including one concerning France, are also scheduled for today. Any rating change could affect the euro and European bond markets amid ongoing political and fiscal concerns in France.
Ahead of the weekend, profit-taking after the yen’s rapid gains may coincide with position reductions prompted by concerns about developments in the Middle East.
Key Points to Watch in Overseas Trading
- Whether USD/JPY can hold around 156.80
- Whether the pair can break above 157.36 and return to the mid-157s
- Whether 156.08 and 156 provide support if yen strength resumes
- Whether buying continues in U.S. equities during regular trading
- Whether U.S. PMIs beat market expectations
- Whether GBP/USD can recover 1.3400
- Whether EUR/USD can find support around 1.1200
- Canadian retail sales and oil-price movements
- France’s credit-rating review and weekend developments in the Middle East
Scenarios
The base case is for buying after the sharp decline to meet renewed selling, leaving USD/JPY to search for direction between the high 156s and the 157s.
If U.S. equities stabilize and the PMI data remain resilient, USD/JPY could test 157.36 and potentially rebound into the mid-157s.
Conversely, if U.S. equities weaken again and the PMIs disappoint, the pair could fall below 156.80 and retest 156.08 and the 156 level.
With the BOJ and Federal Reserve policy meetings approaching next week, it will be important to distinguish short-term swings from a sustained change in direction.
Summary
USD/JPY fell to 156.08 today before rebounding into the 157s as equities recovered. However, the recovery has been sluggish in the low 157s, and concerns about further yen strength remain.
In Europe, weak eurozone PMIs have weighed on the euro, while strong UK PMIs have not triggered a significant rally in sterling. The market’s reaction after the data matters as much as whether the figures beat or miss expectations.
Tonight, the focus is on the U.S. PMIs and the reaction in U.S. equities. These will help determine whether USD/JPY’s rebound can continue or whether yen strength will resume toward 156.
