USD/JPY Forecast: With the BoJ Unmoved, ISM Non-Manufacturing PMI Sets the Stage

Highlights

• USD/JPY showcases robust performance with a significant 0.85% jump on Tuesday, closing at 147.715.
• BoJ is unlikely to deviate from its ultra-loose stance after household spending slump.
• ISM data forecasts might challenge the USD/JPY, especially if numbers fall below the 51 mark.

Tuesday Overview

On Tuesday, the USD/JPY rose by 0.85%. Following a 0.15% gain on Monday, the USD/JPY ended the day at 147.715. A mixed start to the day saw the USD/JPY fall to a low of 146.371 before surging to 147.800.

Bank of Japan Unlikely to Tweak Anytime Soon

Markets were surprised on Tuesday when household spending dropped by 2.7% in July, contrary to the expected 0.7% rise. This decline dashed immediate hopes of the BoJ altering its ultra-loose stance.

BoJ Governor Ueda emphasized the importance of wage growth and demand for changing the inflation outlook and shifting the BoJ’s monetary approach.

Given these consumption stats, the BoJ will likely maintain its ultra-loose policy, contrasting with the Fed’s “higher for longer” aim.

For the BoJ to consider a change, significant wage growth, indicating a demand increase, is essential.

ISM Non-Manufacturing PMI Could Shock the Markets

Today, the US ISM Non-Manufacturing PMI will impact predictions about prolonged high Fed interest rates. Economists expect a drop from 52.7 to 52.5, with figures below 51 likely to spark fears of a US economic downturn.

Since the service sector comprises over 70% of the US economy, a decline might prompt a reevaluation of interest rate plans. A worsening economy could accelerate predictions of a Fed rate cut.

With the ISM Non-Manufacturing PMI numbers in focus, investors should monitor FOMC member commentary with the media. Dovish comments would test buyer appetite for the USD/JPY.

Immediate Forecast: US ISM Non-Manufacturing PMI to Affirm Higher for Longer

The all-important US ISM Non-Manufacturing PMI will likely dictate the near-term direction of the USD/JPY. An unexpected slide to sub-51 may force the Fed to rethink plans for higher for longer.

USD/JPY Price Action

Daily Chart

The USD/JPY, despite the breakout session, remained below the $148.405 resistance level.

However, another bout of risk-off sentiment would bring 148 and the resistance level into play. Later today, the US ISM Manufacturing PMI must avoid a sharp decline to support a run at 148.

Considering the EMAs, the USD/JPY remains well above the 50-day and 200-day EMAs, sending bullish price signals.

The 65.31 14-Daily RSI reading should give the USD/JPY a run at 148 before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 146.649 support band and the 50-day EMA. A hold above the support band and the 50-day EMA would give the bulls a run at the 148.405 resistance level. However, US ISM Non-Manufacturing PMI numbers must impress to support a breakout.

Fed commentary must align with bets on a higher for longer interest rate path to avoid a return to sub-147. A fall to sub-147 would bring the 146.649 support band and the 50-day EMA into view.

The 70.57 14-4H RSI reading suggests the USD/JPY is topping out and needing a catalyst for another leg up.