USD/JPY Forecast: Intervention Threats Loom Amid Consumer Confidence Data

US inflation numbers failed to sink the USD/JPY on Friday, leaving investors to grapple with the threat of a possible government intervention. Will economic indicators from Japan revive buyer demand for the Yen?

A Consumer Confidence Jump Could Signal a July BoJ Rate Hike

Consumer confidence figures from Japan, due Monday (July 1), could influence USD/JPY movements. Analysts expect the index to tick up from 36.2 to 36.5 for June.

An uptick in consumer confidence might suggest increased household spending and inflation driven by demand. With the Yen hovering in intervention territory, should the data exceed expectations, it could prompt the Bank of Japan to consider rate hike discussions.

For perspective, the Consumer Confidence Index dipped in April and May after hitting a 2024 peak of 39.1 in February. This trend mirrored the broader economic landscape. The Japanese economy shrank by 0.5% in Q1 2024, with private consumption dropping 0.7%.

In May 2024, East Asia Econ commented on recent consumer confidence trends, saying,

“Japan – consumer confidence holding up. Rather than currency crisis, the importance of the weaker JPY for macro is via consumer purchasing power. In this respect, April CC looks ok: down a bit, but still well up from the lows.”

The consumer confidence report could influence the appetite for the Yen. However, an intervention or Bank of Japan commentary would move the dial more.

The USD/JPY Remains in the Intervention Zone

On Monday, July 1, the USD/JPY remained in the intervention zone. With no efforts to intervene in the currency markets on Friday, is the Japanese government turning to the Bank of Japan?

On Wednesday, June 26, Bruegel Senior Fellow Alicia Garcia Herrero shared her views on effective measures to bolster the Yen, saying,

“Bank of Japan to start quantitative tightening, which could support the Yen more than intervention.”

Asked if the BoJ would risk cutting JGB purchases back more aggressively if US inflation numbers sink expectations of a September Fed rate cut, Alicia Garcia Herrero replied,

“No choice: yen beyond 160.”

US inflation numbers were softer but remained comfortably above the Fed’s 2% target. Barring intervention on Monday, the Bank of Japan may signal a July rate hike. Additionally, the BoJ may suggest aggressive cuts to JGB purchases, which could sink the USD/JPY.

In the April/May intervention, the USD/JPY tumbled to a May 3 low of 151.856 before climbing to a June 28 high of 161.283.

The rise to 161.283 supported the view that Bank of Japan monetary policy maneuvers may have a more lasting effect on the Yen.

Earlier this morning, finalized manufacturing PMI numbers from Japan failed to fuel buyer demand for the Yen. The Jibun Bank Manufacturing PMI fell from 50.4 to 50.0 in June vs. a preliminary 50.1 reading.

Could US manufacturing sector data and FOMC member commentary shift the momentum toward the Yen?

US Manufacturing Sector in the Spotlight

On Monday, the US ISM Manufacturing PMI will draw investor interest, with economists expecting a rise from 48.7 to 49.0 in June.

A move above 50 would signal a return to expansion and support investor bets on a soft landing. Nevertheless, the numbers are unlikely to influence the Fed interest rate trajectory.

The manufacturing sector accounts for less than 30% of the US economy, giving it little weight vis-à-vis monetary policy.

For context, the ISM Manufacturing PMI remained below 50, signaling a sector contraction in Q4 2023. In contrast, the US economy expanded by 3.4% in Q4 2023, forcing the Fed to keep interest rates higher for longer.

Other stats include finalized S&P Global Manufacturing PMI numbers for June. Changes to preliminary numbers may influence sentiment toward the US economy.

According to the preliminary survey, the S&P Global Manufacturing PMI increased from 51.3 to 51.7.

While the stats may have a limited impact on the USD/JPY, FOMC Member speeches could move the dial.

Consideration Needed for Reactions to the US Personal Income and Outlays Report

Beyond the numbers, investors should monitor FOMC Member chatter. Reactions to the US Personal Income and Outlays Report could influence investor expectations of a September Fed rate cut.

In particular, investors should consider views on inflation and the timing of a Fed rate cut.

Short-term Forecast: Bearish

USD/JPY trends depend on intervention threats, consumer confidence numbers from Japan, and central bank speeches. Better-than-expected consumer confidence figures could raise investor bets on a BoJ rate hike and support a USD/JPY drop below 160. However, an intervention could send the USD/JPY through the 152 handle.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the June 28 high of 161.283 would support a move toward the 162 handle.

Intervention threats, Bank of Japan commentary, consumer confidence numbers from Japan, and Fed speakers require investor attention.

Conversely, a fall through the 160 handle could signal a USD/JPY break below the 50-day EMA. A drop below the 50-day EMA could give the bears a run at the $151.685 support level.

The 14-day RSI at 72.85 shows a USD/JPY in overbought territory. Selling pressure may increase at the June 28 high of 161.283.