USD/JPY Forecast: Navigating Yen Volatility with Upcoming JGB Auction and US Data

Economic Indicators Send Mixed Signals to Investors Betting on a BoJ Rate Hike

On Monday (June 3), disappointing capital spending figures for Q1 2024 affected buyer appetite for the USD/JPY. Capital spending increased 6.8% year-on-year after advancing 16.4% in Q4 2023. Economists forecast capital spending to rise 12.2%.

The pullback in spending could affect Bank of Japan plans to raise interest rates in 2024. Weaker capital spending may signal a deteriorating macroeconomic environment and a cut in staffing levels to save costs.

Weaker labor market conditions could affect wage growth, consumer confidence, and consumer spending. Downward trends in consumer spending would dampen demand-driven inflationary pressures.

After the disappointing number, overtime pay, average cash earnings, and service sector numbers will be in focus on Wednesday (June 5). Weak figures could further impact investor bets on a 2024 BoJ rate hike.

After the May intervention to bolster the Japanese Yen, the 10-year JGB Auction will draw investor interest on Tuesday. Weak demand could pressure the Japanese Yen before the Wednesday numbers.

Investors should also monitor Bank of Japan commentary. Comments regarding inflation and interest rate hikes warrant investor attention.

US Economic Calendar: Labor Market Data and Factory Orders

Later in the session, the US labor market will be in the spotlight, with the US JOLTs Job Openings Report in focus.

Economists forecast job openings to fall from 8.488 million to 8.350 million in April.

Weaker-than-expected labor market data could fuel investor expectations of a September Fed rate cut. Deteriorating labor market conditions may affect wage growth, consumer confidence, and disposable income. Consumers could curb spending, dampening demand-driven inflation.

A softer inflation outlook would support a less hawkish Fed rate path.

Furthermore, investors should consider the job quit numbers. Economists expect job quits to decline from 3.329 million to 3.200 million. Employees are less likely to quit their jobs in a deteriorating labor market environment.

Other stats include factory orders. However, these will likely play second fiddle to the labor market data. The manufacturing sector accounts for less than 30% of the US economy. Nevertheless, higher-than-expected numbers could ease concerns about a hard economic landing.

Economists forecast factory orders to increase by 0.6% in April after rising by 1.6% in March.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on service sector PMI, household spending numbers from Japan, and the US Jobs Report. A jump in US service sector activity and tighter US labor market conditions could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 156.5 handle could give the bulls a run at the 158 handle. Furthermore, a USD/JPY return to the 158 handle could signal a rise to the April 29 high of 160.209.

Bank of Japan commentary and US labor market data need investor consideration.

Conversely, a USD/JPY break below the 155.5 handle could give the bears a run at the 50-day EMA.

The 14-day RSI at 51.15 suggests a USD/JPY move to the April 29 high of 160.209 before entering overbought territory.