Japanese Yen Forecast: USD/JPY Faces Tug-of-War Between Fed Rate Cut Bets and BoJ Data

USD/JPY Steadies Amid Shifting Sentiment on Monetary Policy Divergence

As monetary policy divergence takes center stage, USD/JPY traders brace for a turbulent week driven by Japan’s wage growth and household spending data and America’s labor market test.

USD/JPY gained 0.11% to close at 147.040 in the week ending August 29. In a week of heightened volatility, the pair climbed to an August 22 high of 148.185 before sliding to a low of 146.659.

Outlook: Private Sector PMIs, Household Spending, and Wage Growth in Focus

Why this week’s economic calendar matters for trading the USD/JPY pair: finalized private sector PMIs, wage growth, and household spending will fuel speculation about a Q4 BoJ rate hike.

Recent inflation and labor market data have bolstered expectations for a Q4 rate hike. However, the BoJ may want to see rising wages translate into consumption to move closer to monetary policy normalization, spotlighting household spending.

Will Revisions to the Services PMI Impact the BoJ’s Policy Stance?

Japan’s services sector accounts for over 70% of GDP, underscoring the importance of PMI data for the BoJ. On Wednesday, September 3, Japan’s finalized S&P Global Services PMI will influence demand for the yen. According to the flash report, the PMI fell from 53.6 in July to 52.7 in August. Notably, the rate of selling price inflation eased for the second month amid rising competition.

Economists may temper expectations of a Q4 BoJ rate hike if the finalized survey reveals a similar trend in selling price inflation. A less hawkish BoJ rate path may weaken the Japanese yen, while an upward revision to price inflation could lift the yen.

Wage Growth and Household Spending Key for the BoJ

On Friday, September 5, Japanese household spending and wage growth figures could fuel speculation about a BoJ rate hike.

Economists forecast household spending to rise 1.3% month-on-month in July after tumbling 5.2% in June. A higher reading could boost rate hike bets, given that consumer spending may fuel demand-driven inflation. A more hawkish BoJ policy stance would lift investor appetite for the yen. However, a further drop in spending may curb expectations of further BoJ monetary policy tightening.

Economists expect average cash earnings to rise 3% year-on-year in July, up from 2.5% in June. A pickup in wage growth could boost households’ disposable income and spending, raising demand-driven inflation. On the other hand, softer wage growth could dampen spending and inflation, supporting a less hawkish BoJ rate path.

Why do wage growth and household spending matter for traders and the Bank of Japan?

StockMarket.News remarked on upward trends in wages, stating:

“A tight labor market is fueling this. Companies are being forced to raise wages, which boosts household income and spending. More spending sustains higher prices. Once wage growth feeds inflation, it becomes harder for a central bank to ignore. Japan is reaching that point.”

Bank of Japan Governor Kazuo Ueda recently commented on wages:

“Notably, wage growth is spreading from large enterprises to small and medium enterprises (SMEs). Barring a major negative demand shock, the labor market is expected to remain tight and continue to exert upward pressure on wages.”

Bookmark our real-time updates to stay ahead of USD/JPY volatility.

USD/JPY Outlook: Economic Indicators and the BoJ

• Bullish Yen Scenario: Stronger Japanese data or hawkish BoJ rhetoric could push USD/JPY toward 145.
• Bearish Yen Scenario: Weaker Japanese data or dovish BoJ signals may send the pair toward 150.

US Jobs Report to Fuel Fed Rate Cut Bets and Drive US Dollar Trends

In the US, crucial labor market data, services sector PMI, and Fed speakers will provide traders with clues on the timing of Fed rate cuts.

Key events include:

• JOLTs Job Openings (September 3): Forecast to increase from 7.437 million in June to 7.5 million in July.
• ADP Employment Change (September 4): Expected to rise 72k in August after increasing 104k in July.
• Initial Jobless Claims (September 4): Forecast to rise from 229k (week ending August 23) to 232k (week ending August 30).
• ISM Services PMI (September 4): Expected to rise from 50.1 in July to 50.5 in August.
• Unemployment Rate (September 5): Forecast to rise from 4.2% in July to 4.3% in August.
• Nonfarm Payrolls (September 5): Expected to increase 78k in August after a 73k rise in July.
• Average Hourly Earnings (September 5): Forecast to rise 3.9% year-on-year in August, mirroring July’s increase.

A lower ISM Services PMI reading, higher unemployment, and softer wage growth could fuel speculation about multiple Fed rate cuts. A more dovish Fed policy stance could weigh on US dollar demand. Conversely, a sharp increase in the Services PMI and better-than-expected labor market data could affect Fed rate cut bets. A more hawkish Fed rate path would boost appetite for the US dollar.

Beyond the data, Fed speakers will also require close monitoring as the labor market takes center stage. Fed Chair Powell recently hinted at a Fed rate cut, citing a cooling labor market.

Short-term Forecast:

USD/JPY’s near-term outlook will hinge on key economic data and central bank commentary.

• Bullish US Dollar Scenario: Strong US data or hawkish Fed rhetoric may send USD/JPY toward the 200-day Exponential Moving Average (EMA).
• Bearish US Dollar Scenario: Softer US data or dovish Fed chatter could push USD/JPY below the 50-day EMA, exposing the 145 support level.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades above the 50-day Exponential Moving Average (EMA) but below the 200-day EMA. The EMAs signal a bullish near-term but bearish longer-term bias.

A breakout above the 147.5 level could pave the way toward the 200-day EMA. A sustained move through the 200-day EMA may enable the bulls to target the 149.458 resistance level.

On the downside, a drop below the 50-day EMA could bring the August 14 low of 146.214 into play. If breached, 145 would be the next key support level.

Key Takeaway

The USD/JPY continues to face heightened volatility as data and central bank signals shift sentiment toward Fed and BoJ policy stances. Tracking real-time developments will be critical in navigating short-term movements.

Consult our economic calendar for historical and upcoming data.