BoJ attention will also be on labor and price trends—soft numbers could delay a hike to Q4, while rising wages and prices may accelerate policy tightening.
Wage Growth: A Critical Leading Inflation Indicator
Average cash earnings, due Thursday, June 5, wrap up a busy week for the Yen. Economists predict average cash earnings will rise 2.2% year-on-year in April, up from 2.1% in March.
Higher wages may increase household disposable incomes, lifting household expenditure. A pickup in consumer spending could fuel demand-driven inflation, supporting a hawkish BoJ stance. Conversely, weaker wage growth could dampen household spending and demand-driven inflation. A softer inflation outlook may temper BoJ rate hike bets.
Why Do the Numbers Matter?
Last week, BoJ Governor Kazuo Ueda kept rate hikes on the table, stating the rates will rise if inflation moves sustainably to the 2% target and economic growth aligns with projections. While US tariff risks have dented Q3 hike bets, upbeat Japanese data could reignite interest in a Yen rebound and USD/JPY pullback toward 140.
USD/JPY Outlook: High Volatility Driven by Trade and Data
USD/JPY remains sensitive to policy rhetoric and data releases.
Bullish Yen Scenario: Upbeat Japanese data, hawkish BoJ rhetoric, or escalating trade tensions could send USD/JPY toward 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: Softer Japanese economic indicators, dovish BoJ cues, or easing trade friction may drive the pair above 145.
US Labor Market and Services Data to Guide Fed Rate Cut Bets and Dollar Trends
In the US, labor market data and services PMI will influence expectations for Fed policy.
Key events include:
JOLTs Job Openings (June 3), to fall from 7.192 million in March to 7.05 million in April.
ADP Employment Change (June 4), to increase by 70k in May, up from 62k in April.
Initial Jobless Claims (June 5, to drop from 240k (week ending May 24) to 232k (week ending May 31).
US Jobs Report: Average hourly earnings to slow from 3.8% year-on-year in April to 3.7% in May, while unemployment rate to hold steady at 4.2%.
Weaker-than-expected labor market data may fuel speculation about a US recession, raising bets on a Q3 Fed rate cut. Conversely, tighter labor market conditions may sink Fed rate cut expectations, boosting US dollar demand. The US Jobs Report is expected to be the week’s key release.
Meanwhile, the ISM Services PMI (due June 4) will give insights into the US economic outlook. Since services contribute around 80% to US GDP, a higher PMI reading could allow the Fed to delay rate cuts. However, an unexpected fall toward the neutral 50 rate may signal a more dovish Fed stance.
Potential Price Scenarios:
Bullish US Dollar Scenario: Positive US economic data and hawkish Fed rhetoric could drive USD/JPY above 145.
Bearish US Dollar Scenario: Weaker US data and dovish Fed signals may send USD/JPY toward 140.
Short-term Forecast:
USD/JPY’s near-term price trend hinges on trade developments, economic indicators, and central bank cues. That said, trade talks will continue to carry the greatest market weight in the near term.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY trades below the 50-day and 200-day EMAs, maintaining a bearish technical outlook.
A move above the 50-day EMA could target resistance at the May 29 high of 146.285. Sustained momentum could push toward the May 12 high of 148.647.
On the downside, a break below the May 27 low of 142.108 exposes the 140.309 support level and the September 2024 low of 139.576.
The 14-day Relative Strength Index (RSI) sits at 47.59, indicating potential for further downside before entering oversold territory (RSI< 30).
AloJapan.com