USD/JPY Weekly Forecast: Services PMIs, Inflation, the Bank of Japan, and 155

Weekly Overview of the USD/JPY in the Week Ending April 19, 2024

The USD/JPY gained 0.91% in the week ending April 19, closing the week at 154.598. The USD/JPY fell to a Monday low of 152.960 before rising to a Tuesday high of 154.787.

USD/JPY Analysis: Services PMI, Inflation, and the Bank of Japan

On Tuesday, preliminary private sector PMI numbers for April warrant investor attention. The Services PMI will likely impact buyer demand for the Japanese Yen more, accounting for over 60% of the Japanese economy. The Bank of Japan is eyeing the services sector to fuel demand-driven inflation.

Economists forecast the Jibun Bank Services PMI to slip from 54.1 to 54.0.

Better-than-expected numbers could influence investor expectations of a Bank of Japan interest rate hike. However, investors must consider the sub-components, including prices and employment. Upward trends in job creation and wages would likely draw the attention of the Bank of Japan.

On Friday, inflation figures for Tokyo will be in focus. In recent forward guidance, the Bank of Japan Board member Asahi Noguchi discussed the need for patience vis-à-vis interest rate hikes. Economists expect the core annual inflation rate to ease from 2.4% to 2.2% in April. Softer inflation trends would support expectations of the Bank of Japan holding interest rates at zero.

With inflation in the spotlight, the Bank of Japan will deliver its monetary policy decision on Friday. Economists expect the BoJ to leave interest rates at zero, placing the focus on the press conference. Views on the economy, inflation, and the interest rate trajectory would move the dial.

While the Bank of Japan will be the focal point, investors should monitor intervention chatter. The markets consider 155 as a possible line in the sand.

US Economic Calendar: Services PMI, GDP, and Inflation

Preliminary US private sector PMIs will draw investor interest on Tuesday. The Services PMI will impact the USD/JPY more, accounting for over 70% of the US economy.

Economists forecast the S&P Global Services PMI to increase from 51.7 to 51.8 in April.

Better-than-expected numbers could reduce further investor expectations of multiple 2024 Fed interest rate cuts. Investors should also consider the sub-components, including employment, new orders, and prices. Upward trends in job creation and wages amid an improving demand environment would influence the Fed rate path.

On Wednesday, durable and core durable goods orders need consideration. Economists expect the US to avoid an economic recession. Upbeat figures would signal a robust US economy. Economists forecast durable and core durable goods orders to increase by 2.5% and 0.3%, respectively.

US GDP and jobless claims will be in focus on Thursday. Barring an unexpected surge in US jobless claims, the US GDP numbers will likely impact the USD/JPY more. Higher-than-expected GDP numbers could force the Fed to maintain a higher-for-longer rate path to cool the economy and tame inflation.

On Friday, the all-important Personal Income and Outlays Report warrants investor attention. Upward personal income/spending trends and hotter-than-expected inflation figures could sink investor bets on a September Fed rate cut.

Economists forecast personal income and spending to increase by 0.5% and 0.6%, respectively. Moreover, economists expect the Core PCE Price Index to rise 2.6% year-on-year in March after increasing 2.8% in February.

Other stats include housing sector data and finalized Michigan Consumer Sentiment numbers. However, the numbers will likely play second fiddle to the Services PMI, GDP numbers, and the Personal Income and Outlays Report.

Short-term Forecast

Near-term USD/JPY trends will hinge on service sector PMIs, inflation, and the Bank of Japan press conference. Hotter-than-expected economic indicators from the US could tilt monetary policy divergence toward the US dollar.

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 breakout from the April 16 high of 154.787 would give the bulls a run at the 155 handle.

Service sector PMIs, inflation, US GDP, and the Bank of Japan need investor consideration.

Conversely, a USD/JPY fall through the 153.5 handle could bring the the 151.685 support level into play.

The 14-day RSI at 75.34 shows the USD/JPY in overbought territory. Selling pressure may increase at the April 16 high of 154.787.