Japanese Yen Weekly Forecast: Services PMI, Tokyo CPI to Impact July Rate Hike Bets

USD/JPY Advances on Waning BoJ Rate Hike Bets

In the week ending March 21, the USD/JPY pair rose to a high of 150.144 before briefly falling to a low of 148.169. Despite the dovish shift in the Fed’s policy stance, demand for the US dollar held firm, supporting a late recovery to close the week up 0.45% at 149.291.

The outcome of the spring wage negotiations and Japan’s softer inflation numbers offset the effects of a dovish Fed policy outlook on the USD/JPY pair.

Looking ahead, price trends will hinge on upcoming private sector PMI data and the US Personal Income and Outlays Report.

Japan’s Services Sector in Focus

Japan’s Jibun Bank Services PMI on Monday, March 24, could influence expectations of a July Bank of Japan rate hike. Economists expect the Services PMI to drop to 52.9 in March, down from 53.7 in February.

A larger-than-expected fall could signal a slowdown in economic activity, given that services accounts for around 70% of Japan’s GDP. Softer prices and weaker labor market conditions could also delay a BoJ rate hike beyond July, weighing on Japanese Yen demand.

Conversely, an unexpected rise in service sector PMI, higher prices, and a tighter labor market could lift July rate hike bets, potentially boosting Japanese Yen demand.

Tokyo Inflation and the Bank of Japan Summary of Opinions in Spotlight

Tokyo inflation figures on Friday, March 28, will give further insights into Japan’s inflation outlook. Economists expect Tokyo’s annual inflation rate to accelerate from 2.9% in February to 3.1% in March. A higher reading could fuel speculation about a July BoJ rate hike, impacting the USD/JPY pair.

However, a softer reading may dampen expectations for a July move, driving the pair higher.

The BoJ Summary of Opinions will offer insights into the BoJ’s view on inflation, tariff developments, and the economic outlook. Broad support for a near-term policy move on optimism toward wages driving inflationary pressures higher would raise the chances of a July rate hike. However, concerns about the potential effects of tariffs on the broader economy may push a BoJ move to Q4 2025.

Potential USD/JPY Moves

Key economic data from Japan and BoJ forward guidance will affect the USD/JPY pair’s price trends.

• Bullish Yen Scenario: A stronger Services PMI, hotter inflation, and hawkish BoJ rhetoric could send USD/JPY below the March 11 low of 146.537.
• Bearish Yen Scenario: Weak services PMI, softer inflation, and dovish BoJ signals may push the pair above the 149.358 resistance level and possibly 150.

BoJ Policy Expectations: Economist Poll Results

According to the latest Reuters poll (March 4-11):

• 61 of 62 economists proved correct, predicting the BoJ will hold rates at 0.5% in March.
• 18 of 61 economists forecast a 25-basis point hike in Q2 2025.
• 40 of 57 expect a Q3 2025 rate hike, with 26 out of 37 economists supporting a July move.
• Chances of a July rate hike have increased to 70%, up from 59% in February.

US Services PMI, the Labor Market, and Inflation in Focus

US economic data will also be pivotal to USD/JPY price action. Key reports include:

• S&P Global Services PMI (March 24).
• Initial Jobless Claims (March 27).
• Personal Income and Outlays Report (March 28)

Contributing around 80% to the US GDP, a higher Services PMI reading could temper bets on a June Fed rate cut. Stronger prices and employment data would support a more hawkish Fed stance, lifting the US dollar.

Conversely, a slump in service sector activity, along with softer employment and prices, may fuel speculation about a US recession. In this scenario, the US dollar could face intense selling pressure.

Jobless claims data on Thursday, March 27, will give further clues on labor market conditions. A continued upswing in the jobless claims 4-week average would support a more dovish Fed rate path. However, an unexpected drop in the 4-week average may impact expectations of a June policy move.

While the Services PMI and Jobless claims will influence USD/JPY trends, the Personal Income and Outlays Report will be crucial.

Economists expect the Core PCE Price Index to rise 2.8% year-on-year in February, up from 2.6% in January. A higher inflation print could sink bets on a June rate cut, boosting US dollar demand. Rising personal income and spending would also support the case for a more hawkish Fed rate path.

Conversely, softer inflation and a pullback in personal income/spending may bolster expectations of a Q2 2025 move, dampening US dollar demand.

• Bullish US Dollar Scenario: Stronger Services PMI, with higher prices and rising employment, drop in jobless claims, and rising inflation could drive USD/JPY above 150.
• Bearish US Dollar Scenario: Weaker services PMI, with softer prices and labor market data, and a lower inflation reading may drag the USD/JPY below 147.

US President Trump and Tariff Developments Crucial

Beyond the economic calendar, traders should track global trade developments. An escalation in US trade disputes with China or the EU could stoke inflation, complicating Fed policy. A more hawkish Fed and concerns about Japan’s economy may support a USD/JPY move toward 150, while dovish signals could trigger a drop below 147.

Short-term Forecast:

In the coming week, USD/JPY trends will hinge on:

• Japan’s economic releases and BoJ guidance.
• US PMI, jobless claims, and inflation data.
• Central bank commentary post-data.
• Geopolitical developments, particularly US trade policy.

USD/JPY Price Action

Daily Chart

Despite last week’s gains, the USD/JPY sits well below the 50-day and the 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 149.358 resistance level would support a move to 150. If the USD/JPY pair climbs above 150, it could target the 50-day and 200-day EMAs next.

Conversely, a drop below 148 would likely bring the March 11 low of 146.537 into play. A fall through 146.537 could enable the bears to target 145.

The 14-day Relative Strength Index (RSI) at 46.93 indicates a potential USD/JPY fall to 145 before entering oversold territory (RSI below 30).

Final Thoughts

With BoJ policy signals, Fed rate expectations, and global trade developments in play, traders should prepare for heightened volatility. Economic data and central bank communication will be key drivers of USD/JPY in the days ahead. For a deeper dive, explore our technical analysis here.