Japanese Yen Weekly Forecast: BoJ, Fed, and Tariff Risks Collide in a Pivotal Week

USD/JPY Steadies as President Trump Touts Tariffs

Here’s what traders need to know as the USD/JPY pair gained 0.93% in the week ending February 28, closing at 150.609.

The pair briefly dropped to a low of 148.557 before climbing to a high of 150.985. President Trump’s tariff threats overshadowed softer US inflation, driving US dollar demand. Higher tariffs raise import prices, fueling inflationary pressures.

In the week ahead, the USD/JPY may see increased volatility. Crucial data from Japan likely to influence the Bank of Japan’s policy outlook.

Japan’s Labor Market and Consumer Confidence: Key Consumption Signals

On Tuesday, March 4, labor market data and consumer confidence will give clues into Japan’s private consumption trends and inflation outlook.

Economists expect Japan’s unemployment rate to hold at 2.4% in January, with the jobs/applications ratio remaining at 1.25. A tighter labor market could drive wage growth, fueling consumer spending and demand-driven inflation. Rising inflation could pressure the BoJ to hike interest rates.

Meanwhile, economists forecast Japan’s Consumer Confidence Index to rise to 35.7 in February, up from 35.2 in January. An increase in confidence typically signals stronger consumer spending, while a decline may indicate growing economic concerns.

Private Sector PMIs: Services Sector in Focus

Finalized private sector PMI will draw investor interest on Monday, March 4, and Wednesday, March 6. While manufacturing sector data offers insights into overall demand, Wednesday’s Services PMI will be crucial as the sector accounts for 70% of Japan’s GDP.

According to the flash survey, the Jibun Bank Services PMI rose to 53.1 in February, up from 53.0 in January. An upward revision could boost bets on an H1 2025 BoJ rate hike. However, investors must also consider employment and price trends. Weaker hiring and softer inflationary pressures could temper hawkish expectations. The flash survey revealed softer input prices and weaker employment growth compared with January.

Will the Bank of Japan Green-Light an H1 2025 Rate Hike?

On March 5, Bank of Japan Deputy Governor Shinichi Uchida is on the calendar to speak. His views on inflation, wage growth, and US tariffs will be pivotal for Yen traders. The Japanese Yen would face selling pressure if Uchida downplays the chances of a near-term rate hike. Conversely, if Uchida signals support for a rate hike due to rising inflation and wages, it could trigger a USD/JPY sell-off.

Last week, BoJ Governor Kazuo Ueda warned of significant global economic uncertainties. The central bank may delay policy changes until the impact of US tariff policies becomes clearer.

Potential USD/JPY Moves

Key economic data from Japan and BoJ commentary will influence the USD/JPY pair’s trajectory.

• Bullish Yen Scenario: Tighter employment, rising consumer confidence, and a higher Services PMI reading could reinforce expectations of a BoJ rate hike, pushing USD/JPY below 148.
• Bearish Yen Scenario: Rising unemployment, weaker consumer confidence, and a lower Services PMI reading could temper BoJ rate hike expectations, driving the pair toward 152 and the 200-day Exponential Moving Average (EMA).

What Do the Polls Say About the BoJ’s Policy Outlook?

In February, a Reuters poll showed all surveyed economists expect the BoJ to maintain interest rates at 0.5% in March. However, 19 of the 61 predict at least one 25-basis point hike in Q2 2025, with 38 of 58 economists expecting a move in July or September.

US Services PMI, Jobs Report, and Fed Policy in Focus

Meanwhile, it is another crucial week for the US dollar. Key data includes:

• ADP Employment Change (March 5).
• ISM Services PMI (March 5).
• Initial Jobless Claims (March 6).
• US Jobs Report (March 7).

On March 5, the ISM Services PMI will face scrutiny after the Markit-based data signaled a services sector contraction. Economists forecast the ISM Services PMI to rise from 52.8 in January to 53.0 in February.

A higher PMI reading could ease recession jitters and temper bets on an H1 2025 Fed rate cut as services contribute around 80% to US GDP. Conversely, an unexpected drop below the crucial 50 neutral level could fuel speculation about a US recession, boosting bets on multiple 2025 Fed rate cuts.

While the Services PMI will influence sentiment toward the Fed rate path, US labor market data will be crucial. Economists predict:

• ADP to report a 140k increase in employment in February after rising 183k in January.
• Initial jobless claims to surge from 242k (week ending February 22) to 340k (week ending March 1).
• US unemployment rate to remain at 4% in February.
• Average hourly earnings to rise 4.1% year-on-year in February, mirroring January’s increase.
• Nonfarm payrolls to increase 133k in February, down from 143k in January.

Tighter labor market conditions could boost wages and consumer spending, fueling demand-driven inflation. Under this scenario, markets could lower bets on an H1 2025 Fed rate cut, pushing the USD/JPY pair toward 152. Conversely, weaker labor market data may fuel Fed rate cut bets, sending the pair below 148.

Beyond the economic data, traders should monitor the FOMC members’ commentary for rate guidance. US tariff rhetoric remains a wildcard. Any escalation in U.S.-China or U.S.-EU trade disputes could exacerbate inflation concerns, complicating Fed policy.

Short-term Forecast:

In the coming week, USD/JPY trends will hinge on:

• Japan’s Economic Data: Services PMI, labor market indicators, and consumer confidence.
• US Reports: US Services PMI, labor market data, and Fed speakers.
• Geopolitical risks: US tariff developments.

A more hawkish Fed would likely push USD/JPY toward 152, while dovish signals may trigger a pullback below 148.

USD/JPY Price Action

Daily Chart

Despite last week’s gains, the USD/JPY remains below the 50-day and the 200-day EMAs, sending bearish price signals.

A USD/JPY break above last week’s high of 150.985 would support a move toward 152 and toward the 200-day EMA. A breakout from the 200-day EMA may enable the bulls to target the 50-day EMA next.

Conversely, a drop below the 149.358 resistance level would signal a potential fall toward last week’s low of 148.514.

The 14-day Relative Strength Index (RSI) at 42.67 suggests a USD/JPY drop to 148 before entering oversold territory (RSI below 30).

Final Thoughts

The upcoming week could bring significant volatility as markets assess Fed rate cuts, BoJ policy shifts, and Tariff effects:

• While the BoJ may delay policy changes due to tariff uncertainties, forward guidance will still provide clues on future BoJ rate moves.
• Fed speakers will also influence the USD/JPY trajectory, with hawkish tones likely to bolster US dollar demand.
• Rising trade war risks could fuel inflationary pressures, giving the US dollar an edge over the Yen.

Traders should monitor real-time data, central bank guidance, and technical trends for price action insights. For deeper insights, check out our in-depth technical analysis here.