Japanese Yen Weekly Forecast: Hawkish BoJ Bets vs. Trump Tariffs – What’s Next?

USD/JPY Closes at 156 Despite Hawkish BoJ Bets – Key Week Ahead

Here’s what traders need to know. The USD/JPY pair declined by 0.91% to close at 156.259 for the week ending January 17. The USD/JPY pair briefly touched a high of 158.194.  However, market speculation about a Bank of Japan rate hike dragged the USD/JPY to a low of 154.969 before a partial recovery.

Machinery Orders to Reflect Business Sentiment

Japan’s machinery orders on Monday, January 20, will give insights into business confidence. Economists forecast machinery orders to rise 5.6% year-on-year in November, mirroring October’s increase.

Better-than-expected numbers could signal improving sentiment, supporting a Bank of Japan rate hike this week. An uptick in business investment could indicate higher employment and wages, BoJ considerations. Conversely, weaker orders may temper expectations of aggressive tightening.

Trade Data Crucial for the Bank of Japan

Japan’s trade terms will face scrutiny on Thursday, January 23. Economists forecast exports to rise 2.3% year-on-year in December, down from 3.8% in November. Weaker exports could affect Japan’s economy, which has a trade-to-GDP ratio of around 47%.

However, economists expect imports to rebound in December with a 2.6% increase year-on-year after falling 3.8% in November. A recovery in domestic demand could boost inflationary pressures, supporting a more hawkish BoJ rate path. However, a further decline may dampen expectations of a more hawkish BoJ policy stance.

Super Friday: Inflation and Services PMI

It will be a pivotal Friday, January 24, for the USD/JPY pair. Services PMI and national inflation figures will likely influence the Bank of Japan’s looming monetary policy decision.

Economists expect Japan’s core inflation rate to rise from 2.7% year-on-year in November to 3.0% in December, stretching further from the BoJ’s 2% target. Higher inflationary pressures could reinforce bets on a BoJ policy move. However, softer readings may shift the focus to service sector data.

Economists predict the Jibun Bank Services PMI will increase to 51.1 in January, up from 50.9 in December. A pickup in service sector activity and rising prices could cement a BoJ rate hike.

The BoJ needs services sector prices to fuel inflationary pressures for raising interest rates. However, an unexpected drop in the headline PMI, falling prices, and softer inflation could signal the policy status quo.

Will the Bank of Japan Hike Rates?

The BoJ’s two-day meeting concludes Friday, with markets anticipating a 25-basis-point rate hike. Recent BoJ commentary has fueled bets on a 25 basis point interest rate hike.

A rate hike and signals further tightening in the first half of 2025 could fuel Japanese Yen demand. Conversely, a hike-and-hold approach may dampen expectations for another move in H1 2025, potentially pressuring the Japanese Yen.

While the BoJ will consider Friday’s data, Trump’s policies will be another talking point in the Bank’s Two-day policy meeting.

Potential USD/JPY Moves

Economic data from Japan and the BoJ will influence USD/JPY trends. Better-than-expected economic data and a hawkish BoJ rate hike could drag the USD/JPY pair below 150. Conversely, weaker-than-expected data and a dovish BoJ rate hike may drive the pair toward 160.

Trump’s Inauguration and the Services PMI in Focus

Trump’s inauguration on January 20 will impact the USD/JPY pair. Speculation about sweeping US tariffs has gyrated global markets in the lead-up to Trump’s inauguration.

Plans for aggressive tariffs from day one could fuel a flight to safety, potentially triggering a Yen carry trade unwind. This could send the USD/JPY pair toward 140, mirroring the 2024 unwind and drop to 139.576 in September.

However, suggestions of gradual tariffs targeting critical sectors may deliver market relief. A softer tariff stance could push the USD/JPY toward 160.

Meanwhile, Services PMI data on January 24 also needs consideration. Economists expect the S&P Global Services PMI to slip from 56.8 in December to 56.6 in January.

A larger-than-forecast decline could support a more dovish Fed rate path. Conversely, a pickup in service sector activity and higher prices could temper Fed rate cut bets. A less dovish Fed stance could push the pair toward 160.

In summary, Trump’s tariff plans will be the key driver. A softer tariff stance would give the Services PMI more weight regarding USD/JPY trends.

Short-term Forecast:

USD/JPY trends will hinge on Japan’s economic data and the BoJ’s policy decision. Rising inflation and service sector activity could allow the BoJ to deliver a hawkish rate hike. This scenario could pull the USD/JPY pair below 150. Conversely, softer data and a BoJ hike and hold may weigh on demand for the Yen, potentially pushing the pair toward 160.

External factors like Trump’s inauguration speech also remain critical. Tariff-related comments will influence market sentiment and USD/JPY trends.

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 remains well above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling bullish price trends.

A USD/JPY break above the 156.884 resistance level could signal a move toward 160. A return to 160 could suggest momentum toward the 161.920 resistance level.

Investors should consider the economic indicators, Trump’s inauguration, and the BoJ monetary policy decision and forward guidance for USD/JPY price trends.

Conversely, a USD/JPY drop below the 155 would bring the 50-day EMA into play. A fall through the 50-day EMA could enable the bears to target the 149.358 support level.

The 14-day (Relative Strength Index (RSI) at 57.74 indicates a USD/JPY climb to 160 before entering overbought territory (RSI above 70).

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