USD/JPY Forecast: Household Spending and Jobs Report Drive Near-Term Trends

Bank of Japan in the Spotlight

On Thursday (June 6), Bank of Japan Board member Toyoaki Nakamura could influence buyer appetite for the USD/JPY.

Recent economic indicators support more meaningful Bank of Japan discussions about interest rate hikes. In April, average cash earnings increased 2.1% year-on-year after an increase of 1.0% in March. The April numbers reflected the outcome of the spring wage negotiations, also known as Shunto.

Higher wages may increase disposable income, fueling consumer spending and demand-driven inflation. The BoJ could hike interest rates to deliver price stability.

Additionally, the Jibun Bank Services PMI fell modestly from 54.3 to 53.8 in May, up from a preliminary PMI of 53.6. The rate of job creation was among the most marked since 2007, while input price inflation softened from an eight-month high in April.

Reactions to the latest economic data will need consideration, with support for a nearer-term rate hike likely to drive buyer demand for the Yen,

Beyond the stats, views on the effects of a weak Yen on the Japanese economy will also attract investor attention. On Tuesday (June 4), BoJ Deputy Governor Ryozo Himino reportedly highlighted the effects of Yen trends on the Japanese economy, saying,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

His comments suggested that sustained weakness in the Yen could influence the BoJ interest rate trajectory.

There are no stats from Japan to consider on Thursday, as investors await household spending numbers for April (Fri).

US Economic Calendar: US Labor Market in the Spotlight

Later in the session on Thursday, US labor market data will warrant investor attention.

Economists forecast initial jobless claims to increase from 219k to 220k in the week ending June 1. According to preliminary numbers, unit labor costs and nonfarm productivity rose by 4.9% and 0.1% in Q1 2024.

An unexpected spike in jobless claims could raise investor bets on a September Fed rate cut. Weaker labor market conditions could affect wage growth and reduce disposable income. Downward trends in disposable income could impact consumer spending, dampening demand-driven inflation. The net effect could be a less hawkish Fed interest rate trajectory.

Unless there are marked revisions to the preliminary unit labor cost and nonfarm productivity figures, the jobless claims will likely impact the USD/JPY more.

On Wednesday (June 5), the US ISM Services PMI beat forecasts, surging from 49.4 to 53.8 in May. However, the ISM Services Employment Index rose from 45.9 to 47.1, signaling a continued contraction, albeit at a less marked rate. Additionally, the ADP reported a softer-than-expected increase in private payrolls. The reports suggested a weakening US labor market environment.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on household spending numbers from Japan and the US Jobs Report. A jump in household spending and weaker-than-expected US wage growth figures would likely impact buyer demand for the USD/JPY. Nevertheless, interest rate differentials firmly favor the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 156.500 level could give the bulls a run at the 158 level. Furthermore, a USD/JPY return to the 158 level would support a move toward the April 29 high of 160.209.

Investors should consider Bank of Japan commentary and US labor market data.

Conversely, a USD/JPY fall through the 155 handle would bring the 50-day EMA into play. A drop below the 50-day EMA could signal a fall toward the 151.685 support level.

The 14-day RSI at 50.67 suggests a USD/JPY return to 160 before entering overbought territory.