USD/JPY Forecast: US Jobs Report and Services PMI in Focus

Highlights

• The USD/JPY rallied 0.93% on Thursday, ending the session at 144.622.
• US labor market data supported a return to the 144 handle.
• On Friday, the focus will be on the Bank of Japan, services PMI numbers, and the US Jobs Report.

USD/JPY Movements on Thursday

The USD/JPY rallied 0.93% on Thursday. Following a 0.92% gain on Wednesday, the USD/JPY ended the session at 144.622. The USD/JPY fell to a low of 142.851 before rising to a Wednesday high of 144.849.

Japanese Economy: Services PMI in the Spotlight

On Friday, the Services PMI drew investor interest. In December, the manufacturing sector contracted at a more marked pace. However, a pickup in service sector activity could support bets on a Bank of Japan pivot from negative rates.

The Jibun Bank Services PMI increased from 50.8 to 51.5 in December, down from a preliminary 52.0. According to the finalized survey,

• New business rose at the most marked pace since September.
• Costs for raw materials, labor, and fuel drove input prices higher. As a result, output price inflation was the strongest for four months.
• Service sector optimism hit the highest level since August.

Significantly, the services sector accounts for over 60% of the Japanese economy. A pickup in service sector activity and anticipated wage growth trends could enable the BoJ to exit negative rates in H1 2024. The increase in price pressures could draw the attention of the BoJ.

Later today, consumer confidence numbers from Japan also need consideration. The Bank of Japan needs demand-driven inflation to support a pivot from negative rates. Upward trends in consumer confidence could fuel consumer spending and demand-driven inflationary pressures. Economists forecast consumer confidence to slip from 36.1 to 36.0 in December.

US Jobs Report and the Services Sector in Focus

On Friday, the US Jobs Report and ISM Services PMI warrant investor attention. A hotter-than-expected US Jobs Report and pickup in service sector activity could reduce bets on a Q1 2024 Fed rate cut.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income could fuel consumer spending and demand-driven inflation. A pickup in inflationary pressures would force the Fed to delay rate cuts, impacting disposable income. A downward trend in disposable income could curb spending and dampen demand-driven inflation.

Wage growth directly impacts disposable income and will be a focal point. Economists forecast average hourly earnings to increase by 3.9% year-over-year in December versus 4.0% in November.

The ISM Services PMI may impact bets on a Q1 2024 Fed rate cut. Accounting for over 70% of the economy, a pickup in activity would support an upward trend in the demand environment. However, investors must consider the sub-components, including prices and employment.

Beyond the numbers, FOMC member reaction to the US Jobs Report needs monitoring.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the US Jobs Report. A steady unemployment rate and a pickup in wage growth could reduce bets on a Q1 2024 Fed rate cut. The net effect could be further US dollar gains as the Bank of Japan awaits wage negotiations in March.

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A USD/JPY break above the 144.713 resistance level would give the bulls a run at the 50-day EMA and the 146.649 resistance level.

The US Jobs Report and ISM Services PMI are focal points for the Friday session.

However, a fall through the 200-day EMA would bring the 142.177 support level into view.

The 14-day RSI at 52.54 indicates a USD/JPY break above the 146.649 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY held above the 50-day EMA while sitting below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A USD/JPY break above the 144.713 resistance level and the 200-day EMA would support a move to the 146.649 resistance level. Selling pressure could intensify at 144.800. The 200-day EMA is confluent with the 144.713 resistance level.

However, a fall through the 144 handle would give the bears a run at the 50-day EMA and the 142.177 support level.

The 14-period 4-hour RSI at 75.25 shows the USD/JPY in overbought territory. Selling pressure could intensify at 144.800.