Japanese Yen Weekly Forecast: Japan’s GDP, Services PMI, and Inflation in Focus

USD/JPY Ends Four-Week Losing Streak Amid Shifting Fed Rate Cut Expectations

Here’s what traders need to know as the USD/JPY pair advanced by 0.59% in the week ending February 14, closing at 152.282.

The USD/JPY pair briefly dropped to a low of 151.170 before climbing to a high of 154.797. Last week’s moves reflected shifting sentiment toward the Bank of Japan and the Fed’s policy outlooks.

BoJ Rate Hike Bets Rise on Producer Prices

Japan’s producer prices reinforced expectations of a second BoJ rate hike in H1 2025. Previous data, including wage growth and household spending, signaled potential demand-driven inflationary pressures.

This week, traders should closely monitor Japan’s GDP, trade, Services PMI, and inflation data. These reports could significantly influence sentiment toward a BoJ rate hike.

Japan’s Economy Takes Center Stage

On Monday, February 17, GDP numbers from Japan will influence the USD/JPY and market sentiment toward the BoJ’s rate path.

Economists forecast Japan’s economy to grow by 0.3% quarter-on-quarter in Q4 2024 after expanding by 0.2% in the previous quarter. A sharper pickup in growth could bolster BoJ rate hike expectations, driving Japanese Yen demand. Conversely, a weaker reading may delay BoJ action, pressuring the Yen.

Beyond the headline figure, Japan’s private consumption trends will be key. Economists expect private consumption to drop by 0.3% quarter-on-quarter after rising 0.7% in Q3 2024. A steep fall could dampen inflationary pressures and the need for a BoJ move.

Trade Data in Focus Amid US Tariff Risks

On Wednesday, February 19, Japan’s trade data will draw investor interest as President Trump sharpens his focus on trade imbalances.

Economists expect exports to soar 7.9% year-on-year in January, up from 2.8% in December, and imports to follow a similar trend. A sharper rise in imports and exports would indicate domestic and overseas demand, crucial signals for the Japanese economy. Better-than-expected figures would support a more hawkish BoJ stance, boosting Yen demand. However, weaker readings may test expectations of a near-term BoJ rate hike.

Beyond the headline data, investors should consider trade terms with the US. Japan had a trade surplus of ¥1,012 million in December 2024. A widening in the trade surplus could face Trump scrutiny, potentially affecting Japan’s trade policies and the BoJ’s stance.

Japan Services PMI and Inflation to Spotlight the BoJ

On Friday, February 21, crucial economic indicators, including Services PMI and inflation data, could dictate the BoJ’s near-term policy outlook.

Economists forecast Japan’s Jibun Bank Services PMI to drop from 53.0 in January to 52.2 in February. Slower services sector activity and softer prices may lower bets on a near-term BoJ rate hike. However, rising prices could support a more hawkish BoJ stance.

Economists expect Japan’s core inflation rate to increase to 3.1% in January, up from 3.0% in December, surpassing the BoJ’s 2% target.

A higher inflation reading and services sector prices could cement expectations for a BoJ rate hike in H1 2025. Conversely, softer inflation and a declining services sector price trend could temper rate hike bets, pressuring the Yen.

Potential USD/JPY Moves

Japan’s key economic indicators and speculation about a BoJ rate hike will be key drivers of USD/JPY trends.

• Bullish Yen Case: Upbeat data and hawkish sentiment toward the BoJ rate path could drag the USD/JPY pair below 150.
• Bullish USD Case: Softer readings and falling bets on a BoJ rate hike could push the pair toward 155.

Expert Views on the Bank of Japan’s Rate Outlook

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on Japan’s recent wage growth figures:

“Japanese wages growth remains up…supporting the case for further gradual BoJ tightening.”

December’s average cash earnings rose 4.8% year-on-year, up from 3.9% in November. Wage trends are critical for the BoJ’s policy path, as demand-driven inflation remains a core focus.

US Data and Fed Policy Implications

Meanwhile, in the US, initial jobless claims on February 20 will provide insights into labor market strength.

Economists forecast initial jobless claims to increase from 213k (week ending February 8) to 216k (week ending February 15).

A spike in jobless claims may signal a pullback in consumer spending, potentially dampening demand-driven inflationary pressures. A softer inflation outlook may boost bets on an H1 2025 Fed rate cut. Conversely, a drop in claims would support wage growth and consumer spending, supporting a more hawkish Fed rate path.

While labor market data is crucial for the Fed, the S&P Global Services PMI could impact the USD/JPY pair more.

Economists expect the Services PMI to rise from 52.9 in January to 53.2 in February. Accounting for around 80% of US GDP, stronger data could delay a Fed rate cut expectations. However, investors must also assess the employment and price trends. A tighter labor market and rising input prices (wages) would further impact hopes for a looser Fed policy stance.

Beyond the economic data, traders should monitor the FOMC Meeting Minutes (February 19) and FOMC members’ commentary for further policy clues.

For USD/JPY trends, a more hawkish Fed rate path may drive the USD/JPY pair toward 155. Conversely, a dovish Fed stance could drag USD/JPY below 150.

Short-term Forecast:

USD/JPY trends hinge on:

• Japan’s GDP, Services PMI, inflation data, and the BoJ’s forward guidance.
• US labor market data, Services PMI, FOMC meeting minutes, and FOMC members’ commentary.
• Geopolitical risks, including US tariffs.

Speculation about a BoJ rate hike could weigh on the USD/JPY. However, a more hawkish Fed rate path may widen the US-Japan interest rate differential in favor of the US dollar.

USD/JPY Price Action

Daily Chart

After last week’s gains, the USD/JPY sits above the 200-day EMA while remaining below the 50-day EMA. The EMAs send bearish near-term but bullish longer-term price signals.

A USD/JPY return to 153 would support a move toward the 50-day EMA. A break above the 50-day EMA could enable the bulls to target 155 and the 156.994 resistance level next.

Conversely, a USD/JPY drop below the 200-day EMA could bring February’s low of 150.925 into sight. A fall through 150.925 may allow the bears to target the 149.358 support level.

The 14-day Relative Strength Index (RSI) at 41.20 indicates a USD/JPY fall to the 149.358 support level before entering oversold territory (RSI below 30).

Final Thoughts

USD/JPY trends will hinge on:

• Japan’s GDP, Services PMI, inflation, and BoJ signals.
• US labor market data, Services PMI, FOMC minutes, and Fed commentary.
• Geopolitical risks, including US trade policies and tariffs.

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.