USD/JPY Forecast: Reuters Tankan Index and Japan Trade Data Impact on BoJ Hike Bets

Reuters Tank Index Signals Waning Sentiment

On Wednesday (June 19), the Reuters Tankan Survey put the Japanese economy and the USD/JPY in focus.

The Reuters Tankan Survey fell from 9 points to 6 points in June, reminiscent of January’s unexpected slide that caught many investors by surprise. Economists forecast an increase to 12.

The June survey signaled weakening sentiment across the manufacturing and non-manufacturing sectors. Will this be enough to leave the BoJ in a holding pattern on interest rates?

Bank of Japan Governor Kazuo Ueda, recalling the cautious approach taken by his predecessor during volatile times, recently emphasized that further tightening would hinge on incoming data.

While sentiment needs consideration, trade terms may influence the BoJ rate path more.

Later in the morning session, trade data from Japan will warrant investor attention.

Economists expect exports to increase 13.0% year-on-year, with imports to rise 10.4%.

However, Economists forecast the trade deficit to widen from ¥462.5 billion to ¥1,300.0 billion in May. Could this widening gap signal deeper economic issues on the horizon?

Considering the comments from BoJ Governor Ueda, upbeat figures could fuel buyer demand for the Yen. Notably, upward import trends may ease BoJ concerns about the effects of a weak Yen on the Japanese economy.

After contracting in Q1 2024, an improving macroeconomic backdrop would fuel buyer demand for the Yen.

Nevertheless, inflation and Services PMI numbers will likely influence buyer appetite for the Yen more. The BoJ wants the services sector and household spending to fuel demand-driven inflation before raising interest rates.

While investors consider trade data from Japan, US economic indicators will draw investor attention amidst shifting sentiment toward a September Fed rate cut. The potential for a BoJ rate hike and Fed rate cut put the USD/JPY pairing and sub-150 in the spotlight.

US Economic Calendar: Housing Market Data and the Fed

Later in the session on Wednesday, the US housing sector will be in focus.

Economists forecast the NAHB Housing Market Index to remain steady at 45 in June.

Stronger-than-expected numbers could boost demand for the USD/JPY. Economists consider the housing sector a barometer of the US economy. An uptick in the Housing Market Index could bolster consumer confidence and spending. Tighter housing market conditions could push rents higher.

The services sector continues contributing to headline inflation, with the housing services sector a focal point for the Fed. Increasing rent trends and tight labor market conditions could keep the Fed from making any immediate policy changes, supporting demand for the US dollar.

In April, FOMC Member Austan Goolsbee highlighted the impact of rent trends on inflation, stating,

“I have been expecting it to come down more quickly than it has. If it does not come down, we will have a very difficult time getting overall inflation back to the 2% target.”

Investors will focus on US economic indicators alongside shifting sentiment regarding a possible Fed rate cut in September.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on central bank chatter, inflation numbers from Japan, and Services PMIs. Will these factors align to propel the Yen forward, or will uncertainties keep it anchored?

USD/JPY Price Action

Daily Chart

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

A USD/JPY move to the 159 handle could signal a climb toward the April 29 high of 160.209.

Central bank chatter, trade data from Japan, and US housing sector data require investor attention.

Conversely, a USD/JPY drop below the 157.5 handle could bring the 50-day EMA into play. A fall through the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 60.20 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.