Japanese Yen Weekly Forecast: Will USD/JPY Break 143? Jobs Report Could Be the Catalyst

USD/JPY Tumbles on Fed Bets, but Iran-US Talks Could Flip the Script

Monetary policy divergence and Middle East developments fueled USD/JPY volatility in the week ending June 27. While an Iran-Israel ceasefire eased demand for safe-haven assets, surging bets on a Fed rate cut and a potential 2025 Bank of Japan rate hike pressured USD/JPY.

The USD/JPY pair dropped 0.98% to close the week at 144.623. USD/JPY surged to a high of 148.026 before sliding to a low of 143.749.

Outlook: Iran-US Talks, Trade Developments, and Economic Data in Focus

US-Japan trade developments and crucial economic data will influence the Bank of Japan’s policy stance and dictate USD/JPY trends in the week ahead. Despite the ongoing Iran-Israel ceasefire, the pair will remain sensitive to headlines from the Middle East, with US-Iran nuclear agreement talks in focus.

Industrial Production to Reflect the Impact of US Tariffs on Demand

On Monday, June 30, industrial production numbers from Japan will offer insights into the demand environment as President Trump’s July 9 tariff deadline looms. Economists forecast industrial production to rise 0.3% year-on-year (YoY) in May, down from 0.5% in April.

Weaker-than-expected figures would signal a deteriorating demand backdrop, potentially slowing economic momentum. A weaker demand environment may also affect consumer sentiment and private consumption, dampening demand-driven inflationary pressures. In this scenario, economists may lower expectations of a 2025 BoJ rate hike, weighing on Yen appetite.

Conversely, a higher reading may support a more hawkish BoJ policy stance, driving Yen demand.

Tankan Surveys to Guide Bank of Japan on Economic Outlook

The Bank of Japan’s Tankan surveys will give further insights into Japan’s economic trajectory on Tuesday, July 1. Market focus will be on the more influential Large Manufacturers Index. Economists forecast the Tankan Large Manufacturers Index to drop from +12 in Q1 to +10 in Q2.

A sharp decline in the Index may temper speculation about a Q3 BoJ rate hike. Conversely, a higher print may bolster bets on a near-term move, lifting Yen appetite.

While the Tankan surveys guide economists on manufacturing sector activity, Japan’s consumer confidence trends may have greater weight in the BoJ’s policy outlook.

Economists expect the Consumer Confidence Index to increase to 33.5 in June, up from 32.8 in May. Rising consumer confidence could signal a pickup in private consumption, potentially fueling inflationary pressures. A hotter inflation outlook and upbeat consumption would support a more hawkish BoJ rate path. However, an unexpected drop in confidence may pressure the BoJ to maintain interest rates at 0.5%.

Japan Household Spending Trends Crucial for the BoJ

On Friday, July 4, Japan’s household spending trends will be crucial for the BoJ. Economists predict household spending will rise 1.2% YoY in May after declining 0.1% in April. Given private consumption contributes over 60% to Japan’s GDP, higher spending could boost BoJ rate hike bets, fueling demand for the Yen. However, a lower reading may signal softer inflationary pressures, supporting a more dovish BoJ rate path.

Why Do This Week’s Numbers Matter?

Last week, the Bank of Japan’s Summary of Opinions showed two key trends. The economy will likely moderate, with underlying CPI inflation expected to be sluggish and face downside risks. Despite the near-term outlook, the BoJ would continue raising interest rates if the economy and price trends align with forecasts.

Upbeat data would support a more hawkish stance, while a slowing economy may allow the BoJ to hold rates steady in the nearer term.

USD/JPY Outlook: High Volatility Driven by Geopolitics and Economic Indicators

• Bullish Yen Scenario: Upbeat Japanese data, hawkish BoJ signals, or a breach of the Iran-Israel ceasefire could send USD/JPY toward 142.5.
• 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: Weaker Japanese economic indicators, dovish BoJ cues, or progress toward a US-Iran nuclear agreement may drive the pair toward 150.

US Services PMIs and Labor Market Reports to Spotlight US Dollar and the Fed

In the US, labor market data and services sector PMI numbers will influence the Fed rate path and US dollar appetite.

Key events and forecasts include:

• JOLTs Job Openings (July 1): drop from 7.391 million in April to 7.1 million in May.
• ADP Employment Change (July 2): increase by 90k in June after rising 37k in May.
• US Jobs Report (July 3): average hourly earnings to rise 3.9% in June, mirroring May’s increase, with the unemployment rate to remain unchanged at 4.2%.
• ISM Services PMI (July 3): rise from 49.9 in May to 50.3 in June.

Weaker job openings, subdued wage growth, and a higher jobless rate would support Fed rate cut bets by signaling softer inflation and cooling consumer demand. Conversely, strong labor and services data may ease pressure on the Fed to act in July.

The services sector accounts for around 80% of US GDP, making its performance pivotal. Rising prices may delay cuts despite economic weakness, with robust activity potentially pushing rate cut expectations further out.

While the data will influence US dollar demand and USD/JPY trends, trade developments also require consideration.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Upbeat US data, hawkish Fed rhetoric, and easing trade tensions may send USD/JPY toward 150.
• Bearish US Dollar Scenario: US recession jitters, dovish Fed cues, and escalating trade tensions could drag USD/JPY toward 142.5.

Short-term Forecast:

USD/JPY’s near-term outlook hinges on trade developments, economic data, and central bank guidance. That said, trade developments and geopolitical risks will likely carry the greatest market weight in the week ahead.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades below the 50-day and 200-day Exponential Moving Averages (EMA), signaling a bearish technical outlook.

A break above the 50-day EMA could support a move toward last week’s high of 148.026 and the 200-day EMA. Sustained buying pressure may pave the way to the 149.358 resistance level.

On the downside, a break below last week’s low of 143.749 could expose the 142.5 level. Increased selling pressure may enable the bears to target the crucial 140 psychological level and the September 2024 low of 139.576.

The 14-day Relative Strength Index (RSI) sits at 49.40, suggesting USD/JPY has room to drop to 142.5 before entering oversold territory (RSI< 30).

Key Takeaway

The USD/JPY continues to face intense volatility as ongoing Middle East tensions, trade headlines, central bank policy guidance, and macroeconomic data drive sentiment. Staying updated on real-time developments will be pivotal to navigating the week ahead.

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