FX Empire – Average Cash Earnings
Consumption Concerns
East Asia Econ recently underscored the importance of consumption in the BoJ’s May policy decision:
“Japan – shouldn’t the BOJ be worried about consumption? Today’s BOJ’s GDP downgrades were all about tariffs affecting corporates. The bank didn’t sound worried about consumption. But in today’s data releases, the manufacturing PMI ticked up, while consumer confidence fell sharply to a level that’s only been lower three times in the survey’s history.”
Waning consumer confidence may signal weaker spending, which could soften inflation and keep the BoJ in a holding pattern.
USD/JPY Outlook: Wage Growth and Consumption Crucial for Trends
USD/JPY may see another choppy week. Global trade headlines remain in focus, alongside central bank commentary on tariffs and inflation.
Bullish Yen Scenario: Upbeat wage growth and spending data, a hawkish BoJ stance, or an escalation in the global trade war could send USD/JPY below 140.
Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
Bearish Yen Scenario: Weaker data, dovish BoJ rhetoric, or easing trade tensions may drive the pair toward 150.
US Data and the Fed to Impact US Dollar Demand
Trade developments will remain pivotal for USD/JPY trends in the near term. However, upcoming US economic data will also influence the Fed rate path and US dollar demand. Key data releases this week include:
ISM Services PMI (May 5).
FOMC Interest Rate and Press Conference (May 7).
Initial Jobless Claims (May 8).
Economists forecast the ISM Services PMI to slip from 50.8 in March to 50.6 in April. A fall below the 50 neutral level could raise fears of a US recession and bets on multiple Fed rate cuts. Conversely, a higher reading may temper expectations for near-term easing and boost US dollar demand.
Given the services sector contributes around 80% to the US GDP, Monday’s PMI data could influence Fed Chair Powell’s view of the US economy. Markets expect the Fed to leave interest rates at 4.5% on Wednesday, May 7.
Barring a surprise Fed rate cut, the focus will be on Fed Chair Powell’s press conference. Any indication that inflation remains the top priority may signal delayed rate cuts despite economic headwinds.
Potential Price Scenarios:
Bullish US Dollar Scenario: Positive economic data and a hawkish FOMC press conference could drive USD/JPY toward 150.
Bearish US Dollar Scenario: Softer-than-expected US economic and a dovish Fed policy outlook data may drag USD/JPY toward 140.
Short-term Forecast:
This week’s USD/JPY trajectory will depend on trade sentiment, central bank forward guidance, and key macro data.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY trades below the 50-day and 200-day EMAs, preserving a bearish bias.
A move above last week’s high of 145.923 could open the door to testing the 50-day EMA. A sustained breakout may enable the bulls to target the 149.358 resistance level.
On the downside, a drop below last week’s low of 141.955 could expose 140 and the September 2024 low of 139.576.
The 14-day Relative Strength Index (RSI) stands at 50.75, suggesting room for further gains, with overbought territory beginning above RSI 70.
AloJapan.com