Japanese Yen Weekly Forecast: Volatility Looms as Japan Services PMI and US Data Loom

Tariff Shock Hits USD/JPY – Will Yen Rally Last?

Trade developments dragged the US dollar Index lower in the week ending April 18, as President Trump raised tariffs on select Chinese imports to 245% and restricted chip exports to China.

Risk aversion continued to drive demand for safe-haven assets, including the Yen and gold. The USD/JPY dropped 0.93%, closing at 142.108, while gold soared 2.75% to $3,327.

Looking ahead, trade negotiations and tariff developments are likely to influence the USD/JPY pair. However, investors should also monitor central banks’ forward guidance and key economic indicators in the upcoming week.

Services Sector in Focus

Japan’s private sector will be in focus on Wednesday, April 23. Economists expect the crucial Services PMI to drop from 50 in March to 49.7 in April, signaling a contraction.

Given services contribute around 70% to Japan’s GDP, a sharper-than-expected drop could trigger recession fears and potentially delay a Bank of Japan rate hike. A less hawkish BoJ stance could dampen demand for the Japanese Yen.

Economists forecast the Manufacturing PMI to fall to 47.8 in April, down from 48.8 in March. The Manufacturing PMI could offer insights into the effect of tariffs on demand for Japanese goods. US President Trump imposed a 24% tariff on Japanese imports but later reduced it to 10% for 90 days.

Overseas orders, prices, and employment trends will draw significant interest. A sharp fall in overseas demand could adversely impact Japan’s trade balance and economy, given its trade-to-GDP ratio of around 50%.

Last week, Bank of Japan Governor Kazuo Ueda warned about the potential economic fallout from tariffs, suggesting a pause in rate hikes.

Tokyo Inflation Trends Crucial for BoJ Outlook

On Friday, April 25, Tokyo’s inflation figures will be a key driver. Economists predict Tokyo’s CPI Ex Food and Energy to rise 1.4% year-on-year in April, up from 1.1% in March. A higher reading could fuel speculation about a BoJ rate hike. Conversely, a lower inflation reading may allow the BoJ to hold rates and assess tariff impacts.

Despite expressing concern about trade risks, Governor Ueda remains committed to tightening if core inflation approaches the 2% target. Nonetheless, the Bank’s broader economic outlook will likely guide near-term policy.

USD/JPY Outlook: Volatility Risks Ahead

Markets face another potentially volatile week as markets weigh US-Japan trade negotiations, key economic indicators, and BoJ policy clues:

• Bullish Yen Scenario: Upbeat PMI data, higher inflation, a hawkish BoJ stance, and an escalation in the global trade war could drag USD/JPY below 140.
• Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
• Bearish Yen Scenario: Weaker PMI data, softer inflation, a dovish BoJ, and a de-escalation in the global trade war may send the pair above last week’s high of 144.108 toward 145.

US Indicators in Focus

Beyond tariff developments, US data and Fed commentary will also be influential. Key releases this week include:

• Private Sector PMIs (April 23).
• US Initial Jobless Claims (April 24).
• Michigan Consumer Sentiment (April 25).
• Fed Speakers.

Economists forecast the S&P Global Services PMI to drop from 54.4 in March to 52 in April. Since services account for around 80% of the US GDP, a sharper fall toward 50 may trigger recession worries and weaken the US dollar. Economists expect the Manufacturing PMI to drop below the neutral 50 level, potentially spurring further US dollar selling.

Economists expect initial jobless claims to rise from 215k (week ending April 12) to 218k (week ending April 19).

A spike above 250k could add to recession concerns, supporting a more dovish Fed rate path. Alternatively, upbeat labor data could allow the Fed to delay rate cuts.

The final University of Michigan Survey of Consumers will also require consideration. Upward revisions to inflation expectations and a downward adjustment to consumer sentiment could impact US dollar demand.

Beyond the data, FOMC members’ commentary could guide traders on the Fed’s views on tariffs, inflation, and the policy outlook.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Easing trade tensions, positive PMI data, lower jobless claims, or hawkish Fed rhetoric could drive USD/JPY toward 145.
• Bearish US Dollar Scenario: An escalating trade war, weaker-than-expected US economic indicators, or dovish Fed chatter may drag USD/JPY below 140.

Short-term Forecast:

USD/JPY trends this week will hinge on:

• Trade developments.
• Japan’s private sector PMIs and inflation data.
• US private sector PMIs, jobless claims, and Michigan data.
• Central bank forward guidance.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY remains below its 50-day and 200-day EMAs, indicating prevailing bearish momentum.

A break above 143 could open the door to a move toward 145. A decisive move above 145 may enable the bulls to target the 50-day EMA and potentially the 149.358 resistance level.

On the downside, a drop below last week’s low of 141.608 exposes the September 2024 low of 139.576.

Final Thoughts

The USD/JPY pair faces another eventful week, with price action hinging on trade policy signals, economic releases, and monetary policy expectations. Traders should brace for elevated volatility and shifting sentiment across the Yen and the US dollar.

For a deeper dive, explore our technical analysis here.