USD/JPY Forecast: Japan’s Labor Market in Focus Amidst BoJ Policy Uncertainty

Japan’s Unemployment Rate: USD/JPY and BoJ Impact

Unemployment data from Japan may impact buyer demand for the USD/JPY on Tuesday, July 30.

Economists forecast the unemployment rate to stay at 2.6% in June. An unexpected fall in the unemployment rate may raise investor bets on a Bank of Japan rate hike.

Tighter labor market conditions could boost consumer confidence and wages. Higher wages may increase disposable income, fueling consumer spending and demand-driven inflation.

The USD/JPY may show more sensitivity to the numbers with the BoJ monetary policy decision on Wednesday, July 31.

The Bank of Japan Monetary Policy Decision

On Wednesday, the Bank of Japan’s monetary policy decision will impact the USD/JPY.

Uncertainty lingers about the BoJ’s interest rate goals and the size of its cut to Japanese Government Bond (JGB) purchases (quantitative tightening).

An interest rate hike and aggressive cuts to JGB purchases could narrow interest rate differentials and accelerate the carry trade unwind.

Aggressive quantitative tightening (QT), an interest rate hike, and a signal for more rate hikes may support a USD/JPY drop below 150. Conversely, the status quo on interest rates and a modest cut to JGB purchases could trigger a USD/JPY move toward 160.

Meanwhile, US economic indicators may influence the Fed rate path and US dollar demand.

US Consumer Confidence and Recession Warnings

The CB Consumer Confidence Index will draw investor interest on Tuesday, July 30. Economists forecast the Index to fall from 100.4 in June to 99.9 in July.

Downward trends in consumer confidence could affect consumer spending, dampening demand-driven inflation. Softer inflation may enable the Fed to cut interest rates more often than expected to deliver price stability.

Beyond the headline number, the Expectations Index also requires consideration. The Index considers consumers’ outlook for income, business, and labor market conditions. Concerns about the economy and labor market conditions may impact consumer confidence further.

The Expectations Index fell from 74.9 in May to 73.0 in June. According to The Conference Board, the Index has been below 80 for five months. An Index below 80 is usually a recession warning, supporting a USD/JPY fall toward 150.

Private consumption contributes about 70% to the US economy. The US economy could falter if consumers tighten their purse strings.

However, investors should also consider labor market data.

US JOLTs Job Openings Impact

Economists predict JOLTs Job Openings will drop from 8.14 million in May to 8.05 million in June. A fall below 8.00 million could fuel speculation about multiple 2024 Fed rate cuts.

A deteriorating labor market may also impact wage growth and lower disposable income.

A marked deterioration in US labor market conditions could support a USD/JPY drop below 150.

Economists See Weaker Labor Market Conditions

In June, Arch Capital Global Chief Economist Parker Ross reacted to the May JOLTs Report, commenting,

“Although the May Job Openings and Labor Turnover Survey (JOLTS) showed slightly more job openings than expected (8.14m vs 7.95m consensus), the broader underlying downtrends remained in place. […]. The uptick in May merely kept the smoothed series from decelerating more quickly.”

Short-term Forecast: Bearish

USD/JPY trends depend on the Bank of Japan and the Fed’s monetary policy decisions and forward guidance. If the BoJ cuts JGB purchases aggressively and supports multiple rate hikes, the USD/JPY could drop below 150. Furthermore, the USD/JPY could fall toward 140 if the Fed unexpectedly cuts rates on Wednesday.

Investors should remain vigilant. Monitor real-time data, central bank commentary, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY sat below the 50-day EMA while hovering above the 200-day EMA. The EMAs confirmed the bearish near-term but bullish longer-term price trends.

A USD/JPY break above the 155 handle could give the bulls a run at the 50-day EMA. A breakout from the 50-day EMA would support a move toward 160.

Economic data from Japan and the US and Bank of Japan commentary require consideration on Tuesday.

Conversely, a break below the 153.500 handle could give the bears a run at the 200-day EMA and the 151.685 support level. A drop below the 151.685 support level would bring sub-150 levels into view.

The 14-day RSI at 30.95 suggests a USD/JPY drop below 153 before entering oversold territory.