USD/JPY Forecast: Services PMIs, US Jobless Claims to Influence Near-Term Outlook

USD/JPY Movement on Wednesday

The USD/JPY gained 0.27% on Wednesday. Following a 1.14% rally on Tuesday, the USD/JPY ended the session at 151.249. The USD/JPY fell to a low of 150.716 before rising to a Wednesday session high of 151.818.

Trade Terms and the Services Sector

On Thursday, trade data from Japan drew investor interest early in the Asian session. The trade deficit narrowed from ¥1,758.3 billion to ¥379.4 billion in February. According to the Ministry of Finance,

• Exports increased by 7.8% year-on-year, while imports rose by 0.5%.
• Japanese exports to the US increased by 18.4% year-on-year, with exports to Western Europe rising 15.7%.
• Exports to China climbed by 2.5% year-on-year.

Later in the Asian session, preliminary private sector PMI numbers from Japan also need consideration. The Jibun Bank Services PMI will likely have more influence. The Bank of Japan recently highlighted an increased need for the services sector to fuel demand-driven inflationary pressures.

Economists forecast the Jibun Bank Services PMI to increase from 52.9 to 53.4 in March. However, investors must consider the sub-components, including prices and wage growth. The markets expect the BoJ to hold at zero for the foreseeable future. Signs of a pickup in service sector activity, household spending, and inflation could adjust the outlook.

US Economic Calendar: Services PMI and Jobless Claims in Focus

On Thursday, service sector PMI numbers and weekly jobless claims will draw investor interest.

Economists forecast the S&P Global Services PMI to fall from 52.3 to 52.0 in March. Accounting for over 70% of the US economy, a larger-than-expected fall could support bets on a June Fed rate cut. However, investors must consider the sub-components, including employment and prices. Despite the FOMC Economic Projections, inflation remains a threat to bets on three Fed rate cuts in 2024.

However, the weekly jobless claims data also need consideration. Economists expect initial jobless claims to increase from 209k to 215k in the week ending Mar 16. Tight labor market conditions support wage growth and disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

Delays to the timeline for cutting Fed interest rates could impact disposable income and curb spending.

Other stats include existing home sales and Philly Fed Manufacturing data. Weaker-than-expected numbers could increase the scrutiny of the US economy.

Beyond the numbers, FOMC member Michael Barr is on the calendar to speak. Views on inflation, the economy, and the timeline for interest rate cuts need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the service sector PMIs and inflation trends. An unexpected increase in US services PMI could test bets on an H1 2024 Fed rate cut. For the BoJ, the current round of economic indicators may not reflect the outcome of the March wage negotiations.

USD/JPY Price Action

Daily Chart

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

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

Service sector PMI numbers from Japan and the US warrant investor attention.

Conversely, a USD/JPY fall through the 150 handle could signal a drop toward the 50-day EMA and the 148.529 support level. Buying pressure may intensify at the 148.529 support level. The 50-day EMA is confluent with the support level.

The 14-day RSI at 61.62 suggests a USD/JPY move to the 152 handle before entering overbought territory.