USD/JPY Forecast: Wage Trends and US Services PMI Drive Yen Price Movements

Overtime Pay, Average Cash Earnings, and the Bank of Japan

On Wednesday (June 5), average cash earnings and overtime pay figures influenced buyer demand for the USD/JPY.

Overtime pay decreased 0.60% year-on-year after falling 0.5% in March. Economists forecast overtime pay to decline by 0.9%.

Average cash earnings advanced 2.1% year-on-year in April after increasing 1.0% in March. Economists expected average cash earnings of 1.7%.

The more marked increase in average cash earnings and a less marked decline in overtime pay could raise investor expectations of a 2024 Bank of Japan rate hike.

Upward trends in wages could increase disposable income. Higher disposable income may fuel household spending and demand-driven inflation. The Bank of Japan could raise interest rates to deliver price stability.

Later in the Wednesday Asian session, the finalized Jibun Bank Services PMI also needs consideration. The Bank of Japan hopes for contributions from the services sector to drive inflationary pressures. A downward revision to the preliminary Services PMI could counter the effects of higher wages.

According to the preliminary survey, the Jibun Bank Services PMI declined from 54.3 to 53.6 in May.

US Economic Calendar: ADP Nonfarm Employment and ISM Services PMI in Focus

Later in the Wednesday session, ADP nonfarm employment change figures will warrant investor attention. Economists expect the ADP to report a 173k increase in employment in May after a 192k rise in April.

Softer-than-expected figures could increase investor bets on a September Fed rate cut. Weaker labor market conditions could impact consumer confidence, wages, and disposable income. The net effect could be a pullback in consumer spending, dampening demand-driven inflation.

However, investors should also consider the ISM Services PMI. Economists forecast the ISM Services PMI to increase from 49.4 to 50.5. Hotter-than-expected numbers could affect the Fed rate path. The services sector contributes over 70% to the US economy and influences inflation trends.

Beyond the headline figure, investors should consider the subcomponents, including prices and employment.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the Services PMIs, US labor market data, and household spending numbers from Japan. Tighter US labor market conditions and a pickup in US services sector activity could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY breakout from the 156 handle would support a move toward the 158 handle. Furthermore, a USD/JPY move to the 158 handle could give the bulls a run at the April 29 high of 160.209.

Service sector PMIs and US labor market data need investor consideration.

Conversely, a USD/JPY break below the 50-day EMA would give the bears a run at the 151.685 support level.

The 14-day RSI at 45.55 indicates a USD/JPY fall to the 151.685 support level before entering oversold territory.