USD/JPY Forecast: BoJ Chatter and the US Jobs Report to Dictate Yen Movement

Bank of Japan, Private Consumption, and Rate Hikes

On Wednesday, July 31, the Bank of Japan unexpectedly raised rates and cut Japanese Government Bond (JGB) purchases, sinking the USD/JPY.

The BoJ made its move despite Japan’s economic challenges as wage growth has failed to boost private consumption.

Private consumption, contributing over 50% to the Japanese economy, declined by 0.7% in Q1 2024. The Japanese economy contracted by 0.5% in the same quarter.

Despite the Spring wage hikes, Q2 2024 household spending trends continued to cause concern. Household spending rose by 0.5% in April before sliding by 1.8% in May.

Concerns about the impact of the weak Yen on import prices, household spending, and the Japanese economy likely influenced the BoJ’s decision.

In July, the Japanese government revised its growth forecasts for the fiscal year ending March 2025 from 1.3% to 0.9%. The government also reiterated concerns about the weak Yen, reportedly stating,

“We can’t overlook the impact a weak yen and rising prices are having on households’ purchasing power,” the private-sector members of the council told Friday’s meeting that discussed the new growth forecasts.”

Bank of Japan Governor Kazuo Ueda addressed misconceptions about a one-and-done rate hike. Governor Ueda stated that the 2008 interest rate of 0.5% would not prevent further rate hikes.

The BoJ expects a stronger Yen to ease import prices, with wage hikes likely to fuel household spending and demand-driven inflation.

Notably, the BoJ projects that rate hikes will not impact the Japanese economy in fiscal years 2025 and 2026.

During the press conference, Governor Kazuo added that the policy rate remained well below the neutral level, signaling more rate hikes for 2024. A more hawkish-than-expected BoJ rate path could drag the USD/JPY below 140 as the Fed considers 2024 rate cuts.

Expert Commentary

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented,

“The Bank of Japan went from nothing in its June meeting to both hiking rates and reducing JGB purchases in one go at its meeting today. Why? . Firstly because of the political cost of an ever weaker yen until recently, hurting households’ purchasing power.”

Garcia Herrero added,

“Secondly, the market has recently started to unwind carry trade positions (with yen as funding currency), leading to a rapid appreciation of the yen. This has put huge pressure on the BoJ to hike or the yen gains would have been wiped out today!”

The US Jobs Report

On Friday, August 2, the Jobs Report could cement investor bets on September and December Fed rate cuts.

Economists forecast average hourly earnings to increase by 3.7% year-on-year in July, down from 3.9% in June. Lower wage growth may reduce disposable income, dampening consumer spending and demand-driven inflation.

An unexpected increase in the US unemployment rate from 4.1% in June could further impact wage growth and consumer spending.

A weaker-than-expected US Jobs Report could intensify speculation about Fed rate cuts and a possible USD/JPY drop below 140.

Fed Chair Powell and the US Labor Market

On Wednesday, July 31, Fed Chair Powell commented on US labor market conditions, saying he did not want labor market conditions to weaken further.

Powell’s comments hinted at the Fed’s willingness to protect the US labor market at any cost.

Goldman Sachs Research’s David Mericle commented on the Fed and US labor market conditions, saying that further softening would be unwelcome.

Short-term Forecast: Bearish

USD/JPY trends will hinge on the US Jobs Report and central bank commentary. Softer US wage growth and higher unemployment could fuel bets on Fed rate cuts. Conversely, more hawkish BoJ commentary could support expectations of a further narrowing in interest rate differentials, favoring the Yen. Sub-140 levels could be the target.

Investors should remain vigilant. Monitor real-time data, central bank monetary policy decisions, 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 well below the 50-day and 200-day EMAs, affirming the bearish price signals.

A USD/JPY breakout from 150 could give the bulls a run at the 151.685 resistance level and the 200-day EMA. A break above the 200-day EMA could signal a move toward the 155 handle.

Central Bank commentary and the US Jobs Report require consideration on Friday.

Conversely, a drop below the 148.529 support level and the trend line could bring the 145.891 support level into view. However, buying pressure may increase at the 148.529 support level. The trend line is confluent with the support level.

The 14-day RSI at 19.38 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 148.529 support level.