USD/JPY Forecast: BoJ Chatter, US Manufacturing, and the Fed in Focus

The Japanese Manufacturing Sector in Focus

On Monday, manufacturing sector data from Japan put the USD/JPY in focus. The Tankan Large Manufacturing Index fell from 13 to 11 in Q1. Economists forecast a decline to 10.

However, the Jibun Bank Manufacturing PMI increased from 47.2 to 48.2 in March.

According to the finalized survey,

• Employment rose at the most marked pace since July 2023.
• New orders and output declined at more modest rates.
• Factory gate prices increased at the fastest pace in three months. However, input prices increased at the softest pace since February 2021.
• Business sentiment remained positive, with firms hoping for a domestic and overseas demand recovery.

The Bank of Japan is focused on the services sector and its contribution to demand-driven inflation. Nonetheless, the macroeconomic environment must be conducive to further monetary policy tightening. The manufacturing PMI data suggested demand conditions could be improving.

With the Japanese economy in the spotlight, investors must track Bank of Japan chatter. Recent speeches have impacted buyer demand for the Yen. A change in narrative amidst ongoing intervention threats could pressure the USD/JPY pairing.

US Manufacturing and Fed Speakers

Later in the session, US manufacturing sector data also needs consideration. The manufacturing sector contributes less than 30% to the US economy. Nonetheless, investors will likely respond to manufacturing sector activity trends. Better-than-expected numbers could support rising expectations of the US avoiding an economic recession.

Economists forecast the ISM Manufacturing PMI to increase from 47.8 to 48.4. Beyond the headline PMI, investors should consider the employment, new orders, and price sub-components.

Investors must track FOMC member commentary at the start of the week. FOMC member Lisa Cook is on the calendar to speak. Reaction to the Personal Income and Outlays Report could influence investor bets on a June 2024 Fed rate cut.

The US Core PCE Price Index increased by 2.8% year-on-year in March after rising by 2.9% in February. Personal income and spending signaled an improving backdrop that could fuel demand-driven inflation. An improving demand environment could cut bets on a June Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on services PMIs, central bank commentary, and the US Jobs Report. A pickup in US service sector activity and a better-than-expected US Jobs Report could drive buyer demand for the USD/JPY. However, intervention threats could limit the upside for the USD/JPY pairing.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY break above the 151.685 resistance level would give bulls a run at the 152 handle.

Intervention chatter, the BoJ, manufacturing sector PMI numbers, and central bank commentary need consideration.

Conversely, a USD/JPY fall through the 151 handle could bring the 50-day EMA into play. A drop below the 50-day EMA could give the bears a run at the 148.529 support level.

The 14-day RSI at 62.87 indicates a USD/JPY move to the 152 handle before entering overbought territory.