USD/JPY Weekly Forecast: US Jobs Report, the Fed, and Interventions

Weekly Overview of the USD/JPY in the Week Ending April 26, 2024

The USD/JPY surged 2.38% in the week ending April 26, closing the week at 158.283. The USD/JPY fell to a Monday low of 154.441 before rallying to a Friday high of 158.437.

USD/JPY Analysis: Retail Sales, Unemployment, and the Bank of Japan

Labor market data and retail sales figures warrant investor attention on Tuesday (April 30). The Bank of Japan continues to focus on wage growth and household spending to fuel demand-driven inflation.

Tighter labor market conditions and upward trends in consumer spending could enable the BoJ to begin rate hike discussions.

Economists forecast the unemployment rate to fall from 2.6% to 2.5% in March and the jobs/applications ratio to remain unchanged at 1.26.

Moreover, economists expect retail sales to increase by 2.6% year-on-year in March after rising 4.6% in February.

Better-than-expected numbers would support buyer appetite for the Japanese Yen. However, the markets will likely need a BoJ reaction to any upbeat numbers to draw a significant market reaction.

On Wednesday (May 1), finalized Manufacturing PMI numbers for April will be in focus.

According to the preliminary survey, the Jibun Bank Manufacturing PMI increased from 48.2 to 49.9. Revisions to the numbers need consideration. Beyond the headline figures, the prices, employment, and new order sub-components require attention. An improving demand environment could draw the interest of the BoJ.

A better macroeconomic environment could support consumer confidence and spending.

The Bank of Japan monetary policy meeting minutes for the March meeting will garner investor interest on Thursday (May 2). The minutes are dated. Nevertheless, discussions about the requirements to raise interest rates need consideration.

On Friday, April 26, the Bank of Japan unanimously voted to leave monetary policy unchanged.

With the USD/JPY at the 158 level, investors should monitor Bank of Japan and Japanese government comments. Intervention chatter will likely influence near-term trends.

US Economic Calendar: US Labor Market, the ISM Services PMI, and the Fed

On Monday (April 29), the Dallas Fed Manufacturing Index will be in focus. Better-than-expected figures could raise expectations of the US economy to avoid a recession. A robust macroeconomic environment could influence the Fed rate path. Economists forecast the Index to increase from -14.4 to -11.0 in April.

However, employment costs and consumer confidence numbers will impact the USD/JPY more on Tuesday (April 30).

Economists forecast employment cost – wages to increase by 0.9% quarter-on-quarter in Q1 2024. Employment cost – wages rose by 0.9% quarter-on-quarter in Q4 2023.

Higher-than-expected figures could further reduce investor expectations of a September Fed rate cut. Higher wages could increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

Furthermore, investors should consider the CB Consumer Confidence Index. Economists expect the Index to slip from 104.7 to 104.5 in April. Hotter-than-expected figures could signal an upward trend in consumer spending and influence the Fed rate path.

On Wednesday (May 1), the US labor market will be in focus. Economists predict the ADP will report a 180k increase in employment for April after a 184k rise in March. Moreover, economists forecast JOLTs Job Openings to decline from 8.756 million to 8.720 million in March.

Better-than-expected numbers could support wage growth and increase disposable income.

The ISM Manufacturing PMI will likely play second fiddle to the labor market data. In the US, the manufacturing sector contributes less than 30% to the economy.

US Labor Market and the Fed Rate Path

Unit labor costs, nonfarm productivity, and initial jobless claims will be in focus on Thursday (May 2). Economists forecast initial jobless claims to increase from 207k to 208k in the week ending April 27.

Furthermore, economists expect unit labor costs to rise by 2.0% quarter-on-quarter in Q1 after increasing by 0.4% in Q4. Economists predict nonfarm productivity to rise by 1.6% quarter-on-quarter after advancing by 3.2% in Q4.

Other stats include factory orders, which are unlikely to influence the Fed rate path.

On Friday (May 3), the US Jobs Report will impact the Fed rate path and the USD/JPY. Wage growth and nonfarm payrolls warrant investor attention.

Economists forecast average hourly earnings to rise by 4.1% year-on-year in April after increasing 4.1% in March. Moreover, economists expect nonfarm payrolls to rise by 210k in April after a 303k jump in March.

Higher-than-expected wage growth and nonfarm payrolls could impact investor expectations of a September Fed rate cut.

However, investors should also consider the ISM Services PMI numbers for April. Economists forecast the ISM Services PMI to increase from 51.4 to 52.3 in April. A larger-than-expected increase would also impact investor expectations of a September Fed rate cut. The US services sector accounts for over 70% of the economy and contributes to inflation.

Beyond the headline number, the employment and prices sub-components also need attention. Upward trends in job creation and input costs will impact buyer demand for the USD/JPY.

The Fed Interest Rate Decision and Press Conference

The USD/JPY will likely react to the labor market data. On Wednesday (May 1), the Fed will announce its interest rate decision. The markets expect the Fed to leave interest rates at 5.50%. The FOMC press conference will warrant investor attention amidst fading bets on multiple 2024 Fed rate cuts. Views on inflation and the Fed rate path will move the dial.

Short-term Forecast

Near-term USD/JPY trends will hinge on US labor market data, ISM Services PMI, and the Fed. Hotter-than-expected US economic indicators and a hawkish Fed could drive buyer demand for the USD/JPY. However, investors must monitor intervention chatter throughout the week.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the 158.5 handle would support a move toward 160.

The US ISM Services PMI, US labor market data, the Fed, and the Japanese government need consideration.

Conversely, a USD/JPY drop below the 155 handle could give the bears a run at the 50-day EMA and the 151.685 support level.

The 14-day RSI at 87.61 shows the USD/JPY in overbought territory. Selling pressure will likely intensify at 160.