USD/JPY Forecast: Japanese Capital Spending and PMI Impact on the Yen

Capital Spending, Manufacturing PMIs, and the Bank of Japan

On Monday (June 3), capital spending numbers from Japan will influence buyer appetite for the USD/JPY.

Economists forecast capital spending to increase 12.2% year-on-year in Q1 2024 after advancing 16.4% in Q4 2023. The less marked increase in capital spending could draw the interest of the Bank of Japan.

A pullback in investment could signal cost-saving efforts and slower job creation rates. Softer labor market conditions could affect wage growth, household spending, and demand-driven inflation.

Later in the morning session, finalized Jibun Bank Manufacturing PMI numbers also need consideration. According to the preliminary PMI survey, the Manufacturing PMI increased by 49.6 to 50.5 in May. Upward revisions to the PMI could signal an improving demand environment. Nevertheless, the Manufacturing PMI will unlikely influence the Bank of Japan rate path.

The services sector, household spending, and inflation are the focal points vis-a-vis monetary policy.

Beyond the numbers, investors should monitor Bank of Japan commentary. After the hotter-than-expected inflation numbers for Tokyo, views on the timing of an interest rate hike would move the dial.

US Economic Calendar: Manufacturing PMIs in Focus

Later in the Monday session, the US ISM Manufacturing PMI needs consideration. Economists forecast the ISM Manufacturing PMI to increase from 49.2 to 49.8 in May. Better-than-expected numbers would support expectations of a soft US landing.

Nevertheless, the PMI numbers will unlikely influence the Fed rate path. The manufacturing sector accounts for less than 30% of the US economy.

Other stats include finalized S&P Global Manufacturing PMI numbers. However, these will likely play second fiddle to ISM Manufacturing PMI survey-based data.

There are no FOMC member speakers to monitor, with the FOMC in its blackout period.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on service sector PMIs and the US Jobs Report. Better-than-expected numbers from the US could fuel speculation about a Fed rate hike and tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 158 handle could signal a move toward the 160 handle. Furthermore, a breakout from 160 could bring the April 29 high of 160.209 into play.

Manufacturing PMI numbers and Bank of Japan commentary need consideration.

Conversely, a USD/JPY break below the 156.5 handle could signal a drop toward the 50-day EMA.

The 14-day RSI at 60.33 indicates a USD/JPY rise to the April 29 high of 160.209 before entering overbought territory.