Japanese Yen Weekly Forecast: Key Data and US Election Risks to Impact USD/JPY Moves

USD/JPY Extends Winning Streak to Five Weeks

The USD/JPY advanced by 0.45% to 152.924 for the week ending November 1, extending the winning streak to five weeks. On Monday, the USD/JPY climbed to a high of 153.877 before falling to a Friday low of 151.777.

Key Focus on Services PMIs and the Bank of Japan Path Rate

On Wednesday, November 6, the finalized Jibun Bank Services PMI will need consideration. According to the preliminary survey, the PMI declined from 53.1 in September to 49.3 in October.

A downward revision could further reduce bets on a Q4 2024 Bank of Japan rate hike. The services sector is crucial, accounting for over 70% of Japan’s economy. Beyond the headline PMI, subcomponents, including new orders, employment, and prices, could influence sentiment toward the BoJ rate path.

Weaker new orders and employment, coupled with softer prices, may cement expectations of a BoJ policy hold through Q4 2024.

BoJ Governor Kazuo Ueda recently emphasized the significance of Services PMI data, stating,

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

Last week, the BoJ maintained interest rates at 0.25%, stating that future policy decisions will depend on incoming data, the economy, and its outlook.

A downward revision to the PMI could push the USD/JPY toward 154, last week’s pivotal resistance level. Conversely, a marked upward revision could fuel bets on a Q4 2024 BoJ rate hike, potentially dragging the USD/JPY below 151.5.

Japan’s Wage Growth Trends Crucial for the BoJ

Wage growth trends may influence buyer demand for the Japanese Yen on Thursday, November 7. Economists expect average cash earnings to increase by 2.8% year-on-year in September, down from 3.0% in August.

Weaker wage growth could reduce disposable income, dampening household spending and inflationary pressures. A softer inflation outlook could further delay the timing of a BoJ rate hike, supporting a USD/JPY move toward 154.

Household Spending and the Japanese Economy

On Friday, November 8, household spending numbers are also crucial. Economists forecast household spending to decline by 1.8% year-on-year in September, following a 1.9% drop in August.

Better-than-expected household spending figures may signal a pickup in inflationary pressures, raising the chances of a Q4 2024 BoJ rate hike. A more hawkish BoJ rate path could support a USD/JPY fall below 151.5. Conversely, weaker spending could delay a BoJ rate hike until Q1 2025, potentially driving the USD/JPY through 154.

Furthermore, private consumption accounts for over 50% of Japan’s GDP, making it a crucial consideration for the BoJ views on the economy.

Other economic indicators on Friday include the Reuters Tankan Index and the Leading Economic Index. However, household spending trends will likely have more impact on the Japanese Yen.

Japan’s Election Result Leaves the BoJ Facing Political Uncertainty

The October 27 general election left Japan in political limbo. The Liberal Democratic Party (LDP) – Komeito coalition fell short of the 233 seats needed for a majority.

The result leaves the BoJ facing political party uncertainty as the LDP considers lesser parties to form a government. Cost of living remains a primary issue for voters, and the LDP may make concessions that could impact BoJ monetary policy plans.

Potential political pressure on the BoJ to maintain loose monetary policy may adversely impact Japanese Yen demand.

Expert Views on the Bank of Japan Rate Path

In a recent Reuters poll, economists expect Japan’s economy to slow sharply, from an annualized 2.9% in Q2 2024 to 0.7% in Q3 2024. Economists attributed the projection to softer private consumption as higher prices offset wage growth.

The prospect of weaker growth could further reduce expectations of a near-term BoJ rate hike and Japanese Yen demand.

US Services PMIs, the Presidential Election, and the Fed

On Tuesday, November 5, the all-important ISM Services PMI will influence US dollar demand. Economists expect the ISM Services PMI to decline from 54.9 in September to 53.3 in October. A larger decline toward 50 could boost bets on a December Fed rate cut as the services sector accounts for around 80% of the US economy.

However, the November 5 US Presidential Election will likely overshadow the data, potentially fueling USD/JPY volatility. A Trump victory could drive the USD/JPY through last week’s 154 resistance.

On Thursday, November 7, the Fed will deliver its penultimate interest rate decision of 2024.

Economists expect the Fed to cut rates by 25 basis points. A 25-basis point Fed rate cut would shift the focus to forward guidance, which may hinge on the US election result. Support for a 25-basis point December rate cut may drag the USD/JPY below 151.5. Conversely, a more hawkish Fed rate path may signal a USD/JPY move through 154.

Short-term Forecast:

Near-term USD/JPY trends will depend on Japan’s economic indicators, the US Presidential Election, and the Fed’s interest rate decision. Softer-than-expected data from Japan, a Trump victory, and a less dovish Fed interest rate outlook could drive US dollar demand and a USD/JPY move through 154.

Conversely, a Kamala Harris win and Fed support for a December interest rate cut could pull the USD/JPY below 151.5.

Investors should stay alert in a pivotal week for the USD/JPY pairing. Monitor real-time data, central bank views, and expert commentary to adjust your 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, sending bullish price signals.

A USD/JPY breakout from the trend line could signal a move toward last week’s high of 153.877. A return to 153.877 could allow the bulls to target the 155 level.

Investors should consider Japan’s economic indicators, the US Presidential Election, and the Fed’s interest rate decision for USD/JPY price trends.

Conversely, a drop below the trend line could bring the 151.685 support level into play. A fall through the 151.685 support level may signal a drop toward 150 and the 200-day EMA.

The 14-day RSI at 64.50 indicates a USD/JPY return to 153.877 before entering overbought territory.