USD/JPY Forecast: US Labor Data and Japanese Trade Terms Influence Yen’s Path

Economic Indicators: Japan’s Trade Terms

On Thursday, July 18, trade data from Japan influenced buyer appetite for the USD/JPY.

Exports increased 5.4% year-on-year in June after rising 13.5% in May, while imports were up 3.2%. In May, imports increased by 9.5%.

The Bank of Japan will likely take notice of the trade data as the July monetary policy meeting looms.

Trade Data, the Japanese Economy, and the Bank of Japan

Imports and exports signaled a weaker demand environment that could affect Q2 GDP numbers. In Q1 2024, the Japanese economy contracted by 0.5%. The exports of goods and services and private consumption impacted the economy.

Significantly, weak trade terms and lackluster household spending could limit the Bank of Japan’s options in July. The Yen’s weakness has fueled speculation of a July BoJ rate hike and a cut to Japanese Government Bond (JGB) purchases. More aggressive monetary policy tightening could narrow interest rate differentials enough to sustainably strengthen the Yen.

After considering trade data from Japan, US labor market data is also crucial in considering near-term USD/JPY trends.

US Economic Data: Continuing Jobless Claims

Economists forecast continuing jobless claims to rise from 1,852k to 1,855k in the week ending July 6.

Higher claims could raise investor bets on a July Fed rate cut. A July Fed rate cut could signal two further rate cuts in September and December.

A July Fed rate cut would significantly impact buyer demand for the USD/JPY. Narrowing interest rate differentials on diverging monetary policies may signal a USD/JPY drop below 150.

Could the Fed Cut Interest Rates in July?

On Monday, Wall Street Journal Chief Economics Correspondent Nick Timiraos reacted to Powell’s speech:

“Fed Chair Jay Powell passed on an opportunity to change expectations that the central bank will hold rates steady at its next meeting. The Q2 inflation data “do add somewhat to confidence” that inflation is returning to 2%.”

Timiraos also reported that Goldman Sachs’s Jan Hatzius considered the chances of a July Fed rate cut, stating,

“While September remains our baseline, we see a solid rationale for already cutting in July. If the case for a cut is clear, why wait another seven weeks before delivering it?”

Short-term Forecast: Bearish

USD/JPY trends depend on the US labor market data and inflation numbers from Japan (Fri). Higher US continuous jobless claims could raise bets on multiple 2024 Fed rate cuts. Conversely, inflation figures from Japan could signal a July BoJ rate hike. The BoJ may also cut JGB purchases more than expected.

Narrower interest rate differentials could signal a USD/JPY break below 150.

Investors should remain alert. 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 holding above the 200-day EMA. The EMAs sent bearish near-term but bullish longer-term price signals.

A USD/JPY break above the 50-day EMA could support a return to 160. A return to 160 could give the bulls a run at the July 3 high of 161.951.

Trade data from Japan, the continuous jobless claims, and central bank commentary require monitoring.

Conversely, a break below the 155 handle could bring the 200-day EMA and the 151.685 support level into play.

The 14-day RSI at 33.44 indicates a USD/JPY decline to 155 before entering oversold territory.