Japanese Yen Weekly Forecast: Inflation and PMI Data to Dictate USD/JPY Trends

USD/JPY Surges to Weekly High of 156.744

The USD/JPY advanced by 1.12% to 154.281 in the week ending November 15. On Friday, November 15, the pair climbed to a weekly high of 156.744 before dropping below 155, its highest level since July.

Machinery Orders and BoJ Governor Kazuo Ueda Kickstart the Week

Monday, November 18, kicks off  the week with Japan’s machinery orders for September. Economists expect machinery orders to increase by 2.2% year-on-year in September after falling 3.4% in August. Higher-than-expected numbers could signal improving demand.

Stronger demand may boost job creation, wage growth, and consumer spending. Upward trends in consumer spending would fuel demand-driven inflation and speculation over a Bank of Japan (BoJ) rate hike.

Amid shifting sentiment toward a BoJ rate hike, BoJ Governor Kazuo Ueda will also speak on Monday. His insights into monetary policy and the Japanese Yen’s weakness will be crucial for the USD/JPY pair. The BoJ Governor could give further clues on the timing of a BoJ rate hike on Thursday, November 21.

Japan’s Trade Data to Reflect Economic Momentum

On Wednesday, import and export figures need consideration. Economists expect exports to increase by 2.2% year-on-year in October after dropping by 1.7% in September. A sharp pickup in exports could highlight the benefits of a weaker Japanese Yen on demand.

However, economists predict imports will decline by 0.3% year-on-year after rising 2.1% in September. Falling imports would indicate weakening domestic demand, potentially impacting the Japanese economy as Japan has a trade-to-GDP ratio above 35%.

Notably, a weaker demand outlook could affect the labor market and the timing of a BoJ rate hike.

Could Service PMI and Inflation Data Cement a December BoJ Rate Hike?

On Friday, November 22, inflation data will be crucial. Economists forecast the annual inflation rate ex-food and energy to soften from 2.1% in September to 2.0% in October. Holding above the BoJ’s 2% target will be pivotal for BoJ board members looking to raise interest rates. Softer-than-expected numbers may delay a BoJ rate hike until Q1 2025.

Alongside inflation trends, economists expect the Jibun Bank Services PMI to rise from 49.7 in October to 50.1 in November. A pickup in services sector activity, job creation, and prices could boost bets on a December BoJ rate hike. BoJ Governor Ueda previously stressed the sector’s importance, stating,

“October is a month when service price revisions are concentrated in Japan, so we must scrutinize data carefully.”

Expert Views on the Bank of Japan Rate Path

Rabobank Head of FX Strategy Jane Foley spoke recently to Bloomberg TV on Wednesday, warning that the BoJ is the one to watch following the USD/JPY move through 155.

Positive Japanese economic indicators and hawkish BoJ commentary could pull the USD/JPY below 153. Conversely, weak indicators and falling bets on a December rate hike could push the USD/JPY above 156. A USD/JPY return to 156 could also retrigger intervention chatter, potentially capping the pair’s upside.

US Economic Calendar: Key Data and Implications

On Thursday, US initial jobless claims could influence the Fed rate path. Economists expect initial jobless claims will increase from 217k (week ending November 9) to 222k (week ending November 16).

A modest increase in claims would signal a resilient labor market, potentially reducing bets on a December Fed rate cut. Conversely, an unexpected spike in claims could refuel bets on a December Fed rate cut.

On Friday, November 22, the all-important S&P Global Services PMI will draw scrutiny. Economists forecast the Services PMI to rise from 55.0 in October to 55.2 in November. A larger-than-expected increase could tank investor bets on a December Fed rate cut. The services sector accounts for around 80% of the US economy, crucial for the Fed’s policy goals.

Beyond the numbers, investors should monitor FOMC member commentary. Forward guidance on the timing of a Fed rate cut will be influential after Fed Chair Powell’s call for caution until greater economic clarity.

Better-than-expected US economic indicators and falling bets on a December Fed rate cut could push the USD/JPY through 156. Conversely, rising Fed rate cut expectations may drag the USD/JPY below 153.

Short-term Forecast:

Near-term USD/JPY trends will hinge on Japan’s inflation data, the Services PMIs, and central bank forward guidance. Expectations of a December BoJ rate hike and Fed rate cut could drag the USD/JPY below 153. Conversely, rising bets on the BoJ and the Fed maintaining interest rates in December might drive the pair through 156.

Investors should stay alert, monitoring real-time data, central bank views, and expert commentary to adjust trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 155 would support a move toward last week’s high of 156.744. Furthermore, a breakout from 156.744 could enable the bulls to target 160.

Investors should consider the key economic indicators and central bank commentary, potentially affecting USD/JPY price trends.

Conversely, a break below 153.5 and the trend line may signal a drop to the 151.685 support level. A fall through the 151.685 support level would bring the 50-day and 200-day EMAs into play.

The 14-day RSI at 58.39 indicates a USD/JPY break above 156.744 before entering overbought territory.