USD/JPY Forecast: Eyes on BoJ Commentary Amid Weaker Japanese Yen Concerns

The Bank of Japan and the Japanese Yen

The Bank of Japan could influence buyer demand for the USD/JPY on Thursday, June 20. Speculation about a July interest rate hike could push the USD/JPY lower towards the 155 level.

Recent economic indicators supported the BoJ decision to leave interest rates unchanged on June 14. However, the lack of commitment to hiking interest rates in the near term has dampened buyer appetite for the Japanese Yen.

With the USD/JPY hovering at the 158 border, BoJ and Japanese government concerns about the effects of a weaker Yen on the economy may intensify. A weaker Yen may increase import costs, impacting consumer prices, household spending, and the Japanese economy. Private consumption contributes over 50% to the Japanese economy.

BoJ Deputy Governor Ryozo Himino recently spoke about the impact of a weaker Yen on the economy, stating,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

The BoJ may wait for inflation and services PMI numbers on Friday before considering its next steps. Nevertheless, investors should monitor BoJ commentary. There are no stats from Japan for investors to consider.

While BoJ chatter could influence buyer demand for the USD/JPY, US economic indicators could keep interest rate differentials strongly in favor of the US dollar.

US Economic Calendar: Jobless Claims and the Philly Fed Manufacturing Index

Later in the session on Thursday, the US labor market and manufacturing sector will be in focus.

Economists forecast the Philly Fed Manufacturing Index to remain steady at 4.5. An unexpected slide in the Index could raise concerns about a US hard landing. However, the numbers may not materially influence the Fed rate path. The manufacturing sector contributes less than 30% to the US economy.

On the other hand, US jobless claims data could influence investor expectations of a September Fed rate cut.

Economists forecast initial jobless claims to fall from 242k to 235k in the week ending June 15.

Lower-than-expected numbers could temper investor expectations of a Fed rate cut. Tighter labor market conditions may support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path may reduce borrowing costs, reduce disposable income, and curb consumer spending.

Other stats include housing sector-related data. However, the stats will likely play second fiddle to the labor market numbers.

With the US labor market in focus, investors should track FOMC member speeches. FOMC Member Thomas Barkin is on the calendar to speak. Views on inflation and the timing of a Fed rate cut could influence buyer demand for the US dollar.

The Richmond Fed President spoke on Tuesday, saying more progress on inflation would be needed to cut interest rates.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on BoJ chatter, inflation numbers from Japan, and Services PMIs from Japan and the US. An increase in service sector activity in Japan and inflation figures exceeding expectations could prompt the BoJ to consider initiating rate hike discussions.

A more hawkish stance from the BoJ could shift the divergence in monetary policies toward the Yen, especially as the Fed contemplates an interest rate cut.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 158 handle could give the bulls a run at the 160 handle and the April 29 high of 160.209.

Central bank chatter and US labor market data require investor attention.

Conversely, a USD/JPY fall through the 157.5 handle could signal a drop to the 50-day EMA. A break below the 50-day EMA could bring the 151.685 support level into play.

The 14-day RSI at 60.43 indicates a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.