Japanese Yen Weekly Forecast: USD/JPY Eyes 151 Amid Projected Weak Tokyo Inflation

Japanese Yen Weakens for a Third Consecutive Week Against the Greenback

The USD/JPY advanced by 0.25% to 149.447 in the week ending October 18, marking a three-week winning streak. On Tuesday, the USD/JPY fell to a weekly low of 148.840 before rallying to a high of 150.320. The USD/JPY revisited 150 for the first time since August 1.

Services PMI Data Crucial for the Bank of Japan Rate Path

On Thursday, October 24, private sector PMI figures will impact buyer demand for the Japanese Yen. Accounting for over 70% of the Japanese economy, the Jibun Bank Services PMI will be crucial for the Bank of Japan.

Economists expect the Jibun Bank Services PMI to drop from 53.1 in September to 52.7 in October. A sharper decline could further reduce bets on a Q4 2024 Bank of Japan rate hike.

In September, Bank of Japan Governor Kazuo Ueda emphasized the importance of the Services PMI data, stating,

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

Beyond the headline PMI, subcomponents like prices (including wage costs) and job creation trends also require consideration. Increasing wage costs and job creation rates could suggest higher household spending, fueling demand-driven inflation. Conversely, weaker data would suggest lower household spending and softer inflation.

Upbeat PMI data could pull the USD/JPY below 148.5, while weak figures may drive the USD/JPY toward 151.

Tokyo Inflation May Drop Below the BoJ’s 2% Target

On Friday, October 25, inflation figures for Tokyo will also require consideration. Economists forecast the annual inflation rate, excluding food and energy, to ease from 1.2% in September to 1.0% in October. Furthermore, economists expect the core inflation rate to fall below the BoJ’s crucial 2% target.

Softer inflation may reinforce expectations of a BoJ interest rate hold through the remainder of Q4 2024. A deteriorating economy and waning global demand may also test investor bets on a Q1 2025 BoJ rate hike, affecting Yen demand.

Softer-than-expected inflation figures could drive the USD/JPY through 151. On the other hand, an unexpected spike could refuel bets on a Q4 2024 BoJ rate hike, potentially dragging the USD/JPY below 148.5.

Expert Views on the Bank of Japan Rate Path

In a recent Reuters poll, economists expect the BoJ to hold interest rates steady this month while divided about a December rate hike.

On Friday, Bank of Japan Governor Kazuo Ueda intimated no pressing need for rate hikes, highlighting uncertainties about the global economy that may impact Japan’s growth prospects.

Governor Ueda’s comments align with the view of Japan’s new Prime Minister, Shigeru Ishiba, that the country is not ready for further rate hikes.

US Economic Indicators: Services PMI and Jobless Claims

Crucial US economic indicators could influence the Fed rate path. On Thursday, October 24, the S&P Global Services PMI and initial jobless claims will offer insights into the inflation outlook.

Economists predict the Services PMI to fall from 55.2 in September to 54.9 in October.

A higher-than-expected PMI could signal a resilient US economy, potentially easing bets on Fed rate cuts in November and December. However, trends in the subcomponents, including prices and employment, could be crucial. Higher costs in wages and broader price trends, alongside rising employment, could signal rising inflation.

Additionally, economists forecast initial jobless claims to increase slightly from 241k (week ending October 12) to 245k (week ending October 19). An unexpected spike in jobless claims could raise investor expectations of multiple Q4 2024 Fed rate cuts.

A more dovish Fed rate path may drag the USD/JPY below 148.5. Conversely, lower jobless claims could reduce bets on multiple Q4 2024 Fed rate cuts, potentially driving the USD/JPY toward 151.5.

On Friday, finalized Michigan Consumer Sentiment figures could also influence the Fed rate path. The Index fell from 70.1 in September to 68.9 in October, according to the preliminary survey. A larger fall could signal a pullback in consumer spending, potentially dampening demand-driven inflation.

A softer inflation outlook would support expectations for November and December Fed rate cuts, possibly sending the USD/JPY below 148.5.

Short-term Forecast:

Near-term USD/JPY trends will hinge on the Services PMI data, Tokyo’s inflation data, and central bank commentary.

Weaker service sector PMI data and softer inflation could end expectations of a Q4 2024 BoJ rate hike, impacting Yen demand. However, US services PMI and jobless claims numbers will be crucial. Weak data could drive bets on multiple Q4 2024 Fed rate cuts, possibly narrowing the interest rate differential between the US and Japan.

Investors should remain vigilant in a crucial 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 hovers above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY return to 150 could signal a move toward the 151 level. Furthermore, a breakout from 151 may allow the bulls to test the 151.685 resistance level and trend line. Selling pressure could intensify at the trend line as it is confluent with the 151.685 resistance level.

Investors should consider the economic indicators from Japan and the US, and central bank commentary for USD/JPY price trends.

Conversely, a drop below the 200-day EMA could bring the 148.529 support level into play. A fall through the 148.529 support level may signal a drop toward the 50-day EMA.

The 14-day RSI at 61.20 indicates a USD/JPY climb above the 151.685 resistance level before entering overbought territory.