Japanese Yen Weekly Forecast: BoJ Rate Path Hinges on Wages and Spending Trends

USD/JPY Hovers at 157 Despite Weekly Pullback – A Crucial Week Ahead

Here’s what traders need to know. The USD/JPY pair ended a three-week winning streak, dropping 0.34% to close at 157.266 for the week ending January 3. The USD/JPY pair touched a high of 158.070 before retreating to a low of 156.014. However, upbeat US labor market data supported a recovery to the 157 level.

Speculation about a January Bank of Japan rate hike weighed on the USD/JPY pair.

Services PMI Crucial for a BoJ Rate Hike

On Monday, January 6, Japan’s all-important Jibun Bank Services PMI will influence Japanese Yen demand. According to the preliminary survey, the Services PMI increased from 50.5 in November to 51.4 in December. An upward revision to the PMI could raise expectations for a January BoJ rate hike.

The services sector accounts for over 70% of Japan’s economy, with employment and price trends crucial for the Bank of Japan and policy maneuvers. In December, BoJ Governor Kazuo Ueda advised the Bank needed more wage growth data before hiking rates.

Rising input prices driven by wages and employment trends may strengthen the hawks’ stance in January’s monetary policy meeting.

Consumer Confidence and Potential Consumption Trends

On Wednesday, January 8, Japan’s Consumer Confidence Index will also influence sentiment toward a January BoJ rate hike. Economists expect the Consumer Confidence Index to climb to 36.6 in December, up from 36.4 in November.

Rising consumer confidence could signal a pickup in household spending, potentially fueling demand-driven inflation. A higher inflation outlook may increase bets on a January BoJ rate hike. Furthermore, a pickup in household spending may boost Japan’s economy as private consumption contributes over 50% to GDP.

Conversely, weaker-than-expected numbers may temper expectations of a January move, weighing on the Japanese yen.

Will Wages and Household Spending Greenlight a January Rate Hike

Two crucial reports could greenlight a January BoJ rate hike.

On Thursday, wage growth figures will draw interest. Economists forecast average cash earnings to increase by 2.7% year-on-year in November, rising from 2.6% in October.

Higher wages could meet the BoJ’s threshold for a rate hike, fueling Japanese Yen demand. In October, base pay increased by 2.7% year-on-year, the fastest since 1992. A further pickup in base pay may be enough to swing the vote. Conversely, softer wages could force the BoJ to wait until the Spring wage negotiations (Shunto) before tightening monetary policy further.

Seabridge Gold Investor, which tracks factors driving metal prices, commented on the wage growth data, stating,

“The Bank of Japan was given another reason to hike rates in a few weeks after October base pay came out and it rose 2.7% y/o/y, up from 2.5% in the month before and that is the fastest rate since 1992. The Trump Administration may get some help with a lower dollar.”

On Friday, January 10, household spending data also requires consideration. Economists predict household spending will drop by 0.7% year-on-year in November after falling 1.3% in October.

A lower-than-expected fall in spending could support a more hawkish BoJ rate path. However, a larger-than-expected decline may dampen demand-driven inflation, potentially easing bets on a January rate hike.

While wage growth is crucial, the BoJ recently stated Japan’s economy must progress in line with its projections to support a rate hike. Weaker consumption could adversely impact the economy.

Potential USD/JPY Moves

Economic data from Japan will play a significant role in determining USD/JPY trends. Better-than-expected economic data could raise bets on a January BoJ rate hike, potentially pulling the USD/JPY pair toward 150. Conversely, weaker wage growth and household spending may drive the pair toward 160.

US Economic Data and the Fed Rate Path Outlook

On Tuesday, January 7, the ISM Services PMI and JOLTS Job Openings reports will draw scrutiny. Economists expect the ISM Services PMI to increase from 52.1 in November to 53.5 in December.

Accounting for around 80% of the US GDP, a pickup in service sector activity could lower bets in a Q1 2025 Fed rate cut. However, investors should consider employment and price trends, two key considerations among FOMC members.

Meanwhile, economists predict that JOLTS Job Openings will drop from 7.744 million in October to 7.650 million in November. While the numbers will draw interest, more recent jobless claims data signaled a resilient US labor market, potentially limiting the impact of the numbers on the US dollar.

Later in the week, the US labor market will remain the focal point, influencing USD/JPY trends. ADP Employment Change, weekly jobless claims, and the US Jobs Report could impact market expectations of a Q1 Fed policy move.

Softer labor market conditions and wages could retrigger bets on a Q1 rate cut, dampening US dollar demand. Conversely, higher wage growth and lower US unemployment may signal a more hawkish Fed rate path, fueling US dollar demand.

In summary, expectations for a Q1 Fed rate cut support a USD/JPY move toward 150. Conversely, falling bets on a Q1 fed rate cut may drive the pair toward the 160 level.

Short-term Forecast:

USD/JPY trends will depend heavily on Japanese and US economic data. Rising wages and spending in Japan could boost expectations of a BoJ hike, while weak data may shift the focus to US indicators. Real-time updates and central bank commentary will be key for navigating market volatility.

Investors should monitor real-time data, central bank decisions, and expert commentary to adapt trading strategies effectively. For timely insights and updates on FX market trends, follow our real-time analysis here!

USD/JPY Price Action

Daily Chart

Despite last week’s decline, the USD/JPY sits well above the 50-day and 200-day EMAs, signaling bullish price trends linked to BoJ and Fed policy expectations.

A USD/JPY return to 158 could suggest momentum toward the critical 160 level. Furthermore, a breakout from 160 may enable the bulls to target the 161.920 resistance level.

Investors should consider the economic indicators, central bank commentary, and Japanese government warnings about an intervention potentially influencing USD/JPY price trends.

Conversely, a USD/JPY drop below the 156.884 support level would bring the 50-day and 200-day EMAs into play. A fall through the 200-day EMA could give the bears a run at the 149.358 support level.

The 14-day RSI at 62.72 suggests a USD/JPY return to 160 before entering overbought territory (RSI above 70).

Dive deeper into the trends. View our latest USD/JPY chart analysis for technical insights.