USD/JPY Daily Forecast: Services PMI Strengthens, BoJ Rate Hike Back on Table?

Japan’s Services PMI and the BoJ Rate Path

On Wednesday, September 4, Japan’s service sector PMI will influence the USD/JPY pair.

According to the preliminary survey, the Jibun Bank Services PMI increased from 53.7 in July to 54.0 in August.

An upward revision to the PMI could fuel speculation about a Q4 2024 Bank of Japan rate hike. As the services sector contributes over 70% to Japan’s economy, investors should also consider subcomponents such as employment and price trends.

Earlier this year, the BoJ stated that the services sector must fuel demand-driven inflation, alongside private consumption, to support a more hawkish BoJ rate path.

The preliminary private sector PMI report highlighted mixed trends:

• The rate of job creation slowed in August.
• Input prices increased at a faster pace.
• However, output prices increased at a slower pace, signaling tighter margins.

Similar trends may temper investor expectations of a Q4 2024 BoJ rate hike. Slower job creation may affect wage growth, possibly dampening consumer spending and demand-driven inflation.

Expert Views on Japan’s Economy and BoJ Rate Path

S&P Global Market Intelligence Associate Director Jingyi Pan commented on the preliminary survey, stating,

“Anecdotal evidence pointed to concerns over labour constraints, particularly in the service sector where employment growth slowed, and also rising price pressures.”

Positive revisions to employment and price trends could support investor bets on a Q4 2024 BoJ rate hike, especially after Friday’s inflation data from Tokyo. Rising bets on a Q4 2024 BoJ rate hike could indicate a USD/JPY fall toward 143.

Taro Kimura, economist at Bloomberg Economics, reacted to Friday’s inflation numbers from Tokyo, reportedly stating,

“The surprisingly sharp run-up in Tokyo’s August inflation will surely catch the Bank of Japan’s eye and, we think, puts a rate hike on the table for the October meeting. The report provides clear evidence that solid pay rises are feeding into consumer prices.”

US Economic Calendar

Later in the session on Wednesday, the focus will shift to the US labor market. Economists expect JOLTs Job Openings to fall from 8.184 million in June to 8.100 million in July.

A drop below 8 million could signal a marked deterioration in labor market conditions and possibly retrigger investor fears of a US economic hard landing. A slower job creation rate may affect wage growth, possibly curbing consumer spending. Weaker consumer spending could impact the US economy as it contributes over 60% to GDP.

Expert Views on the US Labor Market and the Fed Rate Path

On Monday, The Kobeissi Letter, an industry-leading commentary on the global capital markets, stated,

“Further evidence higher unemployment is coming: US consumers’ perceptions of the labor market have weakened to the worst level since 2021. […] In previous business cycles, has been a leading indicator for unemployment. It now suggests that the unemployment rate may increase toward 5.5% in coming months. The labor market is trending toward a recession.”

A sharp fall in job openings could push the USD/JPY down toward 143.

Short-term Forecast: Bearish

USD/JPY trends will hinge on the services sector PMIs, labor market data, and household spending. Better-than-expected numbers from Japan could fuel speculation about a Q4 2024 BoJ rate hike, increasing Yen demand.

However, the US ISM Services PMI and US Jobs Report will also be pivotal. Weaker-than-expected service sector activity and labor market conditions could retrigger bets on a 50-basis point September Fed rate cut and a USD/JPY drop toward 143.

Investors should remain alert. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, confirming the bearish price trend.

A USD/JPY break above the 145.891 resistance level would support a return to 146.500. Furthermore, a return to 146.500 could signal a move toward the 147.500 level.

Service sector PMI data from Japan, US labor market data, and central bank commentary require consideration.

Conversely, a drop below the 144.500 level may bring the 143.495 support level into play.

The 14-day RSI at 40.95 indicates a USD/JPY drop below the 143.495 support level before entering oversold territory.