USD/JPY Forecast: BoJ’s Eyes on Japan Services Sector Activity

Japan Services Sector Activity Puts the Bank of Japan in Focus

On Wednesday, April 3, the Jibun Services PMI for March warrants investor attention. The Bank of Japan recently turned its attention to the services sector as a source of demand-driven inflationary pressures.

A pickup in service sector activity could impact price stability. Economists forecast the Jibun Services PMI to increase from 52.9 to 54.9 in March. Better-than-expected numbers could fuel expectations of a more hawkish BoJ interest rate trajectory to restore price stability.

Investors must consider the sub-components, including employment and prices. A pickup in price pressures could pressure the USD/JPY and remove the need to intervene. However, investors should also consider the implications of weaker-than-expected numbers. Softer numbers could impact buyer demand for the Yen and force the government to intervene.

US Economic Calendar: The US Labor Market, Services Sector, and the Fed

On Wednesday, the investor focus will remain on the US labor market. ADP employment figures for March warrant investor attention. A larger-than-expected increase could sink investor bets on a June Fed rate cut.

Tight labor market conditions could drive wage growth and increase disposable income levels. Higher disposable income could fuel consumer spending and demand-driven inflation.

A more hawkish Fed rate path could affect borrowing costs, hiring trends, and wage growth. Softer wage growth could reduce disposable income, curb consumer spending, and dampen demand-driven inflation.

Economists forecast the ADP to report a 148k increase after rising by 140k in February.

However, service sector PMI numbers for March also need consideration. The services sector accounts for over 70% of the US economy. Moreover, the services sector is the main contributor to inflation. An unexpected pickup in service sector activity could force the Fed to delay rate cuts to slow sector activity.

Economists forecast the all-important ISM Services PMI to remain steady at 52.6. The sub-components, including prices and employment, will also garner investor interest.

Beyond the numbers, Fed speeches need monitoring. Fed Chair Powell is on the calendar to speak. FOMC members Michael Barr, Michelle Bowman, Austan Goolsbee, and Adriana Kulger will also deliver commentary. Views on the US economy and the timing of a Fed rate cut could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on Japanese and US services PMIs, BoJ and Fed chatter, and US labor market data. Better-than-expected Services PMI numbers from Japan could raise expectations of a more hawkish BoJ rate path. Amidst fading bets on an H1 2024 Fed rate cut, bets on a more hawkish BoJ could send the USD/JPY toward 148.

USD/JPY Price Action

Daily Chart

The USD/JPY remained comfortably above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the 151.685 resistance level would support a move to the 152 handle.

Service sector PMIs, US labor market data, central bank chatter, and intervention threats warrant investor attention.

Conversely, a USD/JPY fall through the 151.500 handle could signal a drop toward the 50-day EMA. A break below the 50-day EMA could give the bears a run at the 148.529 support level.

The 14-day RSI at 63.68 indicates a USD/JPY move to the 152 barrier before entering overbought territory.