USD/JPY Weekly Forecast: FOMC Minutes and Jackson Hole Symposium in Focus

USD/JPY Gains Easing Fears of a Hard US Landing

The USD/JPY advanced by 0.64% in the week ending August 16, closing at 147.536. On Wednesday, August 14, the USD/JPY dropped to a low of 146.071 before climbing to a Thursday, August 15, high of 147.399.

Machinery Orders and Trade Data to Signal Demand Trends

Upcoming data will be crucial in assessing the demand environment in Japan. On Monday, August 19, economists forecast machinery orders to increase by 1.1% in June, after a 3.2% slide in May.

Higher-than-expected orders could boost Yen demand, signaling an improving demand environment and economy. Significantly, improving demand could boost business confidence, support wage growth, and fuel household spending. Upward trends in household spending may fuel demand-driven inflation and expectations of a Q4 2024 BoJ rate hike.

On Wednesday, August 21, trade data from Japan will also need consideration.

Economists predict an 11.4% increase in exports year-on-year in July, up from 5.4% in June. Additionally, economists expect imports to rise by 14.9% year-on-year, after an increase of 3.2% in June.

Positive trade data could also boost Yen demand, considering Japan’s trade-to-GDP ratio of about 50%.

Japan’s Services PMI Pivotal for the Bank of Japan

Japan’s Jibun Bank Services PMI, on Thursday, August 22, is another key indicator to consider. Economists expect the Services PMI to increase from 53.7 in July to 54.0 in August.

A higher-than-expected PMI could signal a pickup in economic activity. The services sector accounts for over 70% of the Japanese economy. However, investors should also consider the subcomponents, including prices.

Upward input price trends could raise investor expectations of a Q4 2024 BoJ rate hike. The Bank of Japan recently signaled the need for the service sector to fuel demand-driven inflation to support BoJ rate hikes.

S&P Global Market Intelligence Economist Usamah Bhatti reacted to price trends for July, stating,

“Firms also were wary that sustained inflationary pressure could remain a key downside risk to the private sector economy over the coming months.”

Inflation Trends to Test Bets on a BoJ Hold on Interest Rates

On Friday, August 23, inflation data from Japan could be pivotal for the Bank of Japan and its rate path.

Economists forecast the annual inflation rate to rise from 2.8% in June to 2.9% in July.

A higher-than-expected inflation rate may fuel speculation about a Q4 2024 BoJ rate hike. Last week, producer prices increased by 3.0% year-on-year in July, up from 2.9% in June, signaling higher consumer prices. Producers hike prices in a rising demand environment, passing costs onto consumers.

While the economic data will influence Yen demand, investors should also monitor commentary from the Bank of Japan.

Bank of Japan’s Monetary Policy Stance

Bank of Japan Deputy Governor Uchida Shinichi recently held a press conference following the Yen carry trade unwind, assuring the markets it would not raise interest rates in the near term rate

Meanwhile, Bank of Japan Governor Kazuo Ueda will attend a special parliamentary session on Friday to field questions about the July rate hike. Views on inflation, the economy, and the BoJ rate path could influence Yen demand. The session could give further clues about the BoJ’s rate path. Support rate hikes could signal a USD/JPY fall toward 143.

Expert Views on the Bank of Japan Rate Path

Chief Global Strategist and Director of Research at BCA Research Peter Berezin commented on the BoJ rate path and global recession signals, stating,

“In the history of modern finance, no single indicator has done a better job of predicting when the next global recession will start than when the Bank of Japan starts raising rates. Foolproof!”

Overview of the US Dollar

The US dollar faces a pivotal week, with investors focused on 2024 Fed rate cuts amid speculation about a US hard economic landing.

FOMC Meeting Minutes and the Jackson Hole Symposium

On Wednesday, August 21, the FOMC Meeting Minutes will likely face investor scrutiny. Sentiment toward the US economy, the labor market, and the Fed rate path will influence US dollar demand.

However, speeches from the Jackson Hole Symposium will likely have more of an impact on US dollar demand.

The markets expect Fed Chair Powell to green-light a September Fed rate cut on Friday, August 23. Signals for November and December rate cuts could push the USD/JPY below 145. However, views on the US labor market could also be crucial.

US Services PMI and the US Economy

The S&P Global Services PMI, on Thursday, August 22, will influence investor sentiment toward the US economy.

Economists forecast the Services PMI to decline from 55.0 in July to 54.2 in August.

A weaker-than-expected PMI may rekindle investor fears of a hard US economic landing as the services sector accounts for over 70% of the economy.

Additionally, the employment and price-related subcomponents will be crucial. A slower job creation rate and softer input prices could bolster expectations of multiple 2024 Fed rate cuts. Furthermore, a sharp slowdown in the job creation rate could fuel speculation about a US hard landing.

A deteriorating US labor market could impact wage growth, disposable income, and consumer spending. Downward trends in consumer spending could affect the US economy as it contributes over 60% to GDP.

US Jobless Claims a Crucial Data Release

On Thursday, August 22, initial jobless claims could also influence sentiment toward the US economy and Fed rate path.

Economists forecast initial jobless claims to fall from 227k in the week ending August 10 to 225k in the week ending August 17.

A larger-than-expected fall in initial jobless claims might ease concerns about a hard landing, bolstering demand for the US dollar.

However, investors should consider the Services PMI and jobless claims data. Positive figures could push the USD/JPY toward 150. Conversely, weaker-than-expected numbers could signal a USD/JPY drop toward 143.

Expert Views on the US Economy and the Fed Rate Path

Arch Capital Global Chief Economist Parker Ross commented on the jobless claims data for the week ending August 10, stating,

“Looking at the smoothed 4-week averages for non-seasonally adjusted continuing claims vs recent non-COVID years, we see continued gradual increases across the board aside from 2022 when the labor market started to cool.”

Ross added,

“Flows (i.e. layoffs) have been relatively normal for most of 2024, but unemployed workers are taking longer to find a new job, which is reflected in the much higher level of continuing claims vs initial claims relative to recent non-COVID norms.”

Short-term Forecast: Bearish

Near-term USD/JPY trends will depend on stats from Japan and the US. Positive data from Japan could fuel bets on a Q4 2024 BoJ rate hike, while Weaker US data could retrigger fears of a US hard landing and support expectations of multiple 2024 Fed rate cuts. Expectations of a narrowing in the interest rate differential could push the USD/JPY toward 143.

Investors should remain alert in a pivotal week for the USD/JPY pairing. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

The USD/JPY sat well below the 50-day and 200-day EMAs, affirming the bearish price signals.

A USD/JPY return to 148 would support a break above the 148.529 resistance level and the trend line. A breakout from the trend line could signal a move toward the 200-day EMA and the 151.684 resistance level. Selling pressure may increase at the 151.685 resistance level. The 200-day EMA is confluent with the resistance level.

Investors should consider the economic indicators from Japan and the US, and central bank forward guidance.

Conversely, a fall through 147 could give the bears a run at the 145.891 support level. A break below the 145.891 support level could signal a drop toward the 143.495 support level.

The 14-day RSI at 37.66 suggests a USD/JPY fall to the 145.891 support level before entering oversold territory.