Japanese Yen Weekly Forecast: Will a Dovish BoJ Send USD/JPY Above 150?

USD/JPY Extends Gains on Robust US Economic Data

USD/JPY extended its gains from the previous week as US economic indicators signaled a resilient economy. A pickup in retail sales and a drop in jobless claims boosted demand for the US dollar. Meanwhile, US-Japan trade developments continued to temper bets on a Bank of Japan rate hike, weighing on the Yen.

USD/JPY climbed to a high of 149.185, briefly fell to 146.905, then rallied on July 17 and 18 to end the week 0.94% higher at 148.795.

Outlook: Trade Developments, Key Economic Data, and Central Banks in Focus

US-Japan trade headlines will continue to influence USD/JPY trends as President Trump’s August 1 tariff deadline looms.

While tariff talks will be crucial, economic indicators will influence the BoJ and Fed rate paths. Private sector PMIs and Tokyo inflation numbers will put the spotlight on the Japanese Yen in the week ahead.

Japan’s Private Sector in Focus

Japan’s private sector PMIs will fuel speculation about a 2025 BoJ rate hike on Thursday, July 24. Economists forecast the Jibun Bank Manufacturing PMI to rise from 50.1 in June to 50.2 in July. However, economists expect the more influential Services PMI to fall to 51.3 in July, down from 51.7 in June.

The manufacturing PMI may reflect the impact of US tariffs on external demand, factory gate prices, and the labor market. Softer demand, downward price pressure, and labor market weakness could weigh on the Japanese Yen. Concerns about the impact of tariffs on Japan’s economy have tempered expectations of a BoJ rate hike. Conversely, a pickup in external demand, higher prices, and rising employment could signal a more hawkish BoJ policy stance.

While manufacturing data will draw interest, the Services PMI will likely carry more weight given that the sector contributes around 70% to GDP. Softer services sector inflation may support a more dovish BoJ rate path, while rising prices could revive expectations of a policy move.

Tokyo Inflation to Fuel Rate Hike Speculation

On Friday, July 25, inflation figures for Tokyo will provide further insights into Japan’s inflation outlook. Economists expect the CPI ex food and energy, also known as core core inflation, to ease from 3.1% in June to 3% in July. A drop below 3% could sink expectations of a BoJ policy move, impacting Yen demand. On the other hand, a pickup in core core inflation may support a more hawkish BoJ stance, boosting Yen appetite.

USD/JPY Outlook: Trade Developments, Economic Indicators, and the BoJ

• Bullish Yen Scenario: Strong Japanese data, hawkish BoJ cues, or a US-Japan trade deal could send USD/JPY toward 145.
• Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
• Bearish Yen Scenario: Softer Japanese data, dovish BoJ signals, or failed US-Japan trade talks may drive the pair above 150.

US Data and the Fed to Dictate the Fed Cut Bets and Dollar Demand

In the US, private sector PMI data and Fed commentary will fuel expectations of a Fed rate cut and US dollar demand.

Key events include:

• Initial Jobless Claims (July 24): Expected to rise from 221k (week ending July 12) to 230k (week ending July 19).
• S&P Global Services PMI (July 24): Forecast to hold steady at 52.9 in July.

A lower Services PMI reading, including falling prices and weaker employment, and a higher jobless claims print could support a more dovish Fed rate path. The Services PMI is likely to have greater weight, given that the services sector accounts for around 80% of the US GDP. Conversely, a pickup in services sector activity, including higher prices and rising employment, may cool Fed rate cut bets. A more hawkish Fed stance would drive US dollar demand.

Other key indicators include housing sector data and durable goods orders. However, these will likely play second fiddle to labor market and services sector data.

Beyond the data, Fed speakers will also influence US dollar and USD/JPY trends. Fed Chair Powell will speak on Tuesday, July 22. Traders should consider his views on inflation, the economic outlook, and the Fed rate path.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Better-than-expected US data, hawkish Fed signals, and easing global trade tensions may send USD/JPY toward 150. A move above 150 could bring the March high of 151.208 into play
• Bearish US Dollar Scenario: Softer US data, dovish Fed rhetoric, and rising trade friction could pull USD/JPY toward 145. A drop below 145 may expose the crucial 142.5 support level.

Short-term Forecast:

USD/JPY’s near-term outlook will hinge on trade talks, key economic indicators, and monetary policy cues. Among these, trade headlines will likely be the most influential in the week ahead.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades above its 50-day and 200-day Exponential Moving Averages (EMA). The EMAs signal a bullish bias.

A breakout above the 149.458 resistance level could pave the way to the March high of 151.301. A sustained move through 151.301 would bring the February high of 155.880 into sight.

On the downside, a break below the 200-day EMA would expose the 50-day EMA and the crucial 145 support level. Increased selling pressure could enable the bears to target May and June’s crucial 142.5 support level.

The 14-day Relative Strength Index (RSI) sits at 65.39, indicating USD/JPY can climb to 150 before entering overbought territory (RSI > 70).

Key Takeaway

The USD/JPY continues to experience heightened volatility as trade developments, macroeconomic data, and central bank policy signals influence sentiment. Monitoring real-time developments will be crucial in navigating short-term movements.

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