USD/JPY Forecast: Investor Focus on Machine Tool Orders, BoJ’s Next Moves

Machine Tool Orders, Demand, and the Bank of Japan

Machine tool order figures will influence buyer appetite for the USD/JPY on Tuesday (June 11).

Economists forecast machine tool orders to fall 6.5% year-on-year in May after a decline of 11.6% in April.

The Q1 2024 GDP Report signaled a 5.1% quarter-on-quarter slump in exports from Japan. Exports were weak despite the USD/JPY breaking through 150 during the first quarter.

A weak demand environment may affect the Japanese labor market, consumer confidence, and household spending. Downward trends in household spending could dampen demand-driven inflationary pressures. A softer inflation outlook could leave the Bank of Japan in a holding pattern vis-à-vis interest rates.

However, a weaker Japanese Yen could fuel speculation about a Bank of Japan rate hike to bolster the Yen. The Bank of Japan recently warned that a weaker Yen could affect import prices, private consumption, and the economy. Significantly, a Bank of Japan rate hike may drive buyer demand for the Yen, reducing import costs.

It could be a double-edged sword for the BoJ, which is looking for wage growth to boost household spending. A weaker macroeconomic environment and a hawkish BoJ could affect household spending trends further. In April, household spending slid by 1.2%.

US Economic Calendar: Business Optimism, the US CPI Report, and the Fed

Later in the session on Tuesday, investors should consider the NFIB Business Optimism Index.

Economists expect the NFIB Business Optimism Index to increase from 89.7 to 89.8 in May.

Better-than-expected numbers could affect investor expectations of a September Fed rate cut. A pickup in business confidence could support business investment and job creation. Tighter US labor market conditions may send wages higher and increase disposable income. Higher disposable income could fuel consumer spending and demand-driven inflation.

Nevertheless, investors may hold back from taking positions, with the US CPI Report and FOMC interest rate decision looming. The markets expect the Fed to leave interest rates unchanged on Wednesday. However, hotter-than-expected US inflation numbers could influence the FOMC economic projections.

Short-term Forecast

Near-term trends for the USD/JPY will remain hinged on the US CPI Report, the Fed, and the Bank of Japan. Hawkish FOMC economic projections could tilt monetary policy divergence toward the US dollar. However, a post-Fed USD/JPY rally could fuel speculation about a BoJ rate hike to bolster the Japanese Yen. It could be a choppy second half of the week for the USD/JPY pair.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price trends.

A USD/JPY break above 157.5 could signal a return to the 158 level. If the USD/JPY returns to the 158 handle, the bulls could target the April 29 high of 160.209.

Japan machine tool orders, Bank of Japan chatter, and US economic indicators need consideration.

Conversely, a USD/JPY drop below the 156 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring the 151.685 support level into view.

The 14-day RSI at 56.44 indicates a USD/JPY climb to the April 29 high of 160.209 before entering overbought territory.