USD/JPY Forecast: Key Economic Indicators to Watch as BoJ Rate Decision Looms

BSI Large Manufacturing in Focus

BSI Large Manufacturing numbers for Q2 put investor focus on the USD/JPY as the Bank of Japan interest rate decision loomed.

The BSI Large Manufacturing Index declined by 1.0% quarter-on-quarter in Q2 2024 after falling by 6.7% in Q1 2024. Economists forecast the BSI Large Manufacturing Index to decrease by 5.2%.

While the Bank of Japan primarily focuses on wage growth, the services sector, and inflation, it also considers the broader macroeconomic environment when deciding on monetary policies.

The markets expect the BoJ to leave interest rates unchanged on Friday. However, concerns about the effects of the weaker Yen on the economy and weak private consumption could stir the hawks.

Last week, BoJ Deputy Governor Ryozo Himino raised market awareness of the BoJ focus on the effects of Yen weakness on the Japanese economy, saying,

“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.”

US Economic Calendar: Jobless Claims, Producer Prices, and Fed Speeches

Later in the session on Thursday, monthly US producer prices and weekly jobless claims data will garner investor interest.

Economists expect initial jobless claims to increase from 225,000 to 229,000 in the week ending June 8. Higher-than-expected numbers could signal a deteriorating labor market. Weaker labor market conditions could affect wage growth and disposable income. Lower disposable income may affect consumer spending and dampen demand-driven inflation.

A softer inflation outlook could raise investor expectations of a September Fed rate cut.

Furthermore, economists expect producer prices to rise by 0.1% in May after an increase of 0.5% in April. Additionally, economists predict core producer prices to advance by 0.3% after a rise of 0.5% in April.

Producer prices are a leading indicator of consumer price inflation. Producers may reduce prices in a weakening demand environment, lowering consumer prices. Downward trends in producer prices may also raise investor expectations of a September Fed rate cut.

Beyond the numbers, investors should monitor FOMC member chatter. Fed Vice Chair John Williams is on the calendar to speak. Comments regarding inflation and the interest rate trajectory need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US labor market data, US producer prices, and the Bank of Japan interest rate decision. Weaker-than-expected US data and a hawkish BoJ could tilt monetary divergence toward the Yen and signal a move toward 150.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 157 could give the bulls a run at the 159 handle. A break above 159 could signal a move toward the April 29 high of 160.209.

Bank of Japan commentary, US producer prices, US jobless claims, and Fed speeches 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 could bring the 151.685 support level into view.

The 14-day RSI at 54.29 indicates a USD/JPY move to the April 29 high of 160.209 before entering overbought territory.