USD/JPY Daily Forecast: Will Japan’s Economic Data Fuel Rate Hike Bets?

Japan’s Economic Calendar

This week could be pivotal for the USD/JPY pair. The crucial data releases from Japan may influence the Bank of Japan rate path.

On Wednesday, September 4, finalized Services PMI numbers for August will influence expectations of a Q4 2024 Bank of Japan rate hike. According to the preliminary survey, service sector activity accelerated, suggesting an improving macroeconomic environment.

On Thursday, wage growth trends will also require investor consideration ahead of Friday’s household spending numbers. Higher wages and increased household spending could fuel demand-driven inflation, possibly driving speculation about a Q4 2024 BoJ rate hike.

Investors should closely monitor comments from the BoJ. Insights into inflation, the economy, and the rate path will be crucial.

Expert Views on Japan’s Economy and BoJ Rate Path

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.”

Better-than-expected economic data from Japan and rising bets on a Q4 2024 BoJ rate hike could drive the USD/JPY down toward 145.

US Economic Calendar

Later in the session, investors will shift their attention to the US manufacturing sector.

Economists predict the ISM Manufacturing PMI will increase from 46.8 in July to 47.8 in August.

While accounting for less than 30% of the US economy, better-than-expected numbers may support expectations of a soft US landing. However, investors should consider the subcomponents, including job creation trends, especially amid increasing scrutiny of the US labor market.

Positive numbers may further reduce investor bets on a 50-basis point September Fed rate cut. Rising expectations of a 25-basis point Fed rate cut could signal a USD/JPY move toward 147.500. Conversely, weaker figures could fuel speculation about a 50-basis point rate cut, potentially sending the USD/JPY down toward 145.

Expert Views on the Fed Rate Path

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on Friday’s inflation numbers, stating,

“US Jul core PCE deflator slightly softer at 0.16%mom/2.6%yoy (mkt +0.2%m/+2.7%y), from 2.6%y in Jun PCE deflator in line at 0.2%m/2.5%y. Leaves Fed on track to cut in Sep, which in absence of much weaker jobs looks like being -0.25%.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on the services sector PMI, wage growth, and household spending figures from Japan. Positive data from Japan may boost bets on a Q4 2024 BoJ rate hike and Yen demand.

However, US services sector PMI and US labor market data will also be crucial. Weaker service sector activity and labor market conditions could raise expectations of a 50-basis point September Fed rate cut and a USD/JPY fall toward 145.

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 remained below the 50-day and 200-day EMAs, affirming the bearish price trend.

A USD/JPY return to 147 could give the bulls a run at the 147.500 level. Furthermore, a breakout from 147.500 may signal a move toward the 148.529 resistance level.

The US ISM Manufacturing PMI and central bank commentary require consideration.

Conversely, a fall through the 145.891 support level could bring the 144.500 level into play. A drop below 144.500 may signal a drop toward the 143.495 support level.

The 14-day RSI at 45.41 suggests a USD/JPY break below the 143.495 support level before entering oversold territory.