USD/JPY Weekly Forecast: US Retail Sales and Japan Inflation in Focus

USD/JPY Slides on Intervention Speculation

The USD/JPY tumbled 1.78% to 157.900 for the week ending July 12. It rose to a Wednesday high of 161.807 before sliding to a Friday low of 157.355.

Investors speculated about a possible intervention to bolster the Japanese Yen.

Japan’s Reuters Tankan Index and Economic Sentiment

The Reuters Tankan Index will likely influence buyer demand for the USD/JPY on Tuesday, July 16.

Economists forecast the Reuters Tankan Index to increase from 6 in June to 8 in July. Higher-than-expected numbers could signal an improving macroeconomic environment. The survey canvasses views from leading Japanese manufacturing and services companies. Positive figures indicate more firms saying business conditions are good.

Will Trade Data from Japan Indicate an Improving Demand Environment?

Trade data from Japan will garner investor interest on Thursday, July 18.

Economists forecast exports to increase 6.4% year-on-year in June after rising 13.5% in May. Higher-than-expected exports could suggest a stronger demand environment.

An improving economy could tighten labor market conditions. Tighter labor market conditions may support wage growth and disposable income. Higher disposable income may fuel household spending and demand-driven inflation. A pickup in inflationary pressures could raise investor bets on a July Bank of Japan rate hike.

Exports will be the focal point. However, imports also need consideration. Higher imports would support an increase in output.

Economists expect imports to rise 9.3% year-on-year in June after an increase of 9.5% in May.

Could Inflation Figures for June Greenlight a Bank of Japan Rate Hike?

On Friday, July 19, inflation figures from Japan could be a crucial data release.

Economists expect core inflation to rise from 2.5% in May to 2.7% in June. Higher-than-expected inflation figures may fuel investor expectations of a July BoJ rate hike.

With inflation in the spotlight, investors should monitor commentary from the Bank of Japan. Increasing support for a July interest rate hike would drive buyer demand for the Japanese Yen.

A recent BoJ Survey showed that 95% of respondents felt that prices increased in the last 12 months. The survey also revealed that most respondents expected prices to continue rising.

The survey highlighted the effects of the weak Japanese Yen on consumer prices and inflation trends.

The Weak Yen and Bank of Japan Strategies

In June, Bank of Japan Deputy Governor Ryozo Himino commented on the impact of the Yen’s weakness, stating,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Overview of the US Dollar Outlook

Meanwhile, it could be a crucial week for the US dollar amidst surging bets on a September Fed rate cut.

Can US Retail Sales Numbers Cement a Fed Rate Cut?

US retail sales will be in focus on Tuesday, July 16.

Economists forecast US retail sales to stall in June after rising by 0.1% in May.

Weaker-than-expected retail sales could dampen demand-driven inflation and support a September Fed rate cut. A marked decline in retail sales may re-trigger investor fears of a hard US landing. Private consumption contributes over 60% to the US economy.

Will US Jobless Claims Test Investor Bets on September Rate Cut?

Economists forecast US continuing jobless claims to increase from 1,852k in the week ending July 6 to 1,855k in the week ending July 13.

A deteriorating labor market could affect wage growth and reduce disposable income. Downward trends in disposable income may reduce consumer spending and dampen demand-driven inflation.

During testimony on Capitol Hill, Fed Chair Powell said labor market conditions were softening.

Wall Street Journal Chief Economics Correspondent Nick Timiraos commented,

“They’re (the Fed) now focused on a real chance of more weakness in the labor market than they would want to see, and that is not something we have heard from the Fed up until now.”

Other stats include housing and manufacturing sector data. However, retail sales and labor market data will likely influence the Fed rate path more.

With US retail sales and the labor market in focus, investors should track chatter from the Fed.

Will Fed Chair Powell Greenlight a September Fed Rate Cut?

On Monday, Fed Chair Powell is on the calendar to speak. Recent US inflation figures have raised investor bets on a September Fed rate cut.

According to the CME FedWatch Tool, the probability of a September Fed rate cut surged from 77.7% on July 5 to 96.3% on July 12.

Support for a September rate cut could increase expectations of a December Fed rate cut.

Short-term Forecast

Near-term USD/JPY trends depend on US retail sales, US jobless claims, and inflation numbers from Japan. Weaker-than-expected numbers from the US could cement a September Fed rate cut. Conversely, higher-than-expected inflation figures from Japan may fuel expectations of a July Bank of Japan rate hike. A shift in monetary policy goals could support a USD/JPY drop below 150.

Investors should remain alert in another 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 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 would support a move toward 160. A return to 160 could give the bulls a run at the July 10 high of 161.807.

Inflation figures from Japan, US retail sales, US jobless claims, and central bank commentary require consideration.

Conversely, a break below the 155 handle could signal a fall toward the 200-day EMA and the 151.685 support level.

The 14-day RSI at 41.07 suggests a USD/JPY drop below the 155 handle before entering oversold territory.