USD/JPY Forecast: 150 in View on the US ISM Non-Manufacturing PMI

Highlights

• The USD/JPY surged 1.30% on Friday, ending the session at 148.310.
• On Friday, the US Jobs Report cut bets on a March Fed rate cut, driving demand for the US dollar.
• BoJ and Fed commentary and service sector PMIs from Japan and the US need consideration on Monday.

USD/JPY Movement on Friday

The USD/JPY surged 1.30% on Friday. Reversing a 0.31% loss from Thursday, the USD/JPY ended the day at 148.310. The USD/JPY fell to a low of 146.238 before rising to a session high of 148.585.

Services PMI Numbers for Japan in Focus

On Monday, finalized January Jibun Bank Services PMI numbers will draw investor interest. According to preliminary numbers, the Services PMI increased from 51.5 to 52.7 in January. Investors must consider the sub-components, including prices and employment.

An upward revision to the prelim number could lead to discussions about a Bank of Japan pivot from negative rates.

The services sector accounts for over 60% of the Japanese economy. Significantly, the Bank of Japan considers the services sector and wage growth vital to demand-driven inflation. A pickup in wages and the rate of job creation would support expectations of an H1 2024 BoJ pivot from negative rates.

Beyond the numbers, investors must consider Bank of Japan commentary. References to interest rates would move the dial.

US Economic Calendar: The Services Sector and the Fed in Focus

On Monday, the US services sector will be under the spotlight. Economists forecast the all-important ISM Non-Manufacturing PMI to increase from 50.6 to 52.0 in January. However, investors must consider the sub-components, including employment and prices.

The services sector contributes over 70% to the US economy and is the primary source of inflation. Upward price trends and a pickup in the rate of job creation could reduce bets on a March Fed rate cut. Tighter labor market conditions and upward price trends would drive demand-driven inflationary pressures.

A delay in Fed rate cuts could impact borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

Beyond the numbers, FOMC member Raphael Bostic is on the calendar to speak on Monday. Reactions to the US Jobs Report and the services data could influence bets on a Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the services PMIs and central bank chatter. A marked pickup in US service sector activity and hawkish Fed comments could tilt monetary policy divergence toward the US dollar. However, Bank of Japan discussions about a pivot from negative rates could offset the reducing bets on a March Fed rate cut.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY break above the 148.405 resistance level would bring the 150.201 resistance level into view.

On Monday, service sector PMIs and central bank commentary need consideration.

However, a drop below the 148 handle would bring the 146.649 support level and the 50-day EMA into play.

The 14-day RSI at 60.61 suggests a USD/JPY return to the 149 handle before entering overbought territory.

4-Hourly Chart

The USD/JPY sat above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A USD/JPY breakout from the 148.405 resistance level would support a move toward the 150.201 resistance level.

However, a fall through the 148 handle would give the bears a run at the 50-day EMA.

The 14-period 4-hour RSI at 63.29 suggests a USD/JPY return to the 149 handle before entering overbought territory.