Economists forecast the Tertiary Industry Index to rise 0.2% month-on-month in April after falling 0.3% in March. A higher print could signal a pickup in economic momentum, supporting a more hawkish BoJ stance. However, a surprise fall would suggest a further slowdown in economic activity, tempering rate hike bets.
The Tertiary sector, including financial services, hospitality, and retail, contributes about 70% to Japan’s GDP, emphasizing its economic significance.
According to preliminary data, industrial production fell 0.9% month-on-month in April after rising 0.2% in March. A downward revision would suggest weakening demand in manufacturing, impacting Japan’s economy as the sector accounts for above 20% of GDP. Conversely, a higher print could boost headline GDP, influencing the BoJ’s policy stance.
Why Do the Numbers Matter?
BoJ Governor Kazuo Ueda recently kept rate hike hopes alive, signaling further policy tightening if inflation moves sustainably to the 2% target and economic growth aligns with projections.
Recent polls indicated that US tariffs sank expectations of a Q3 rate hike. However, upbeat Q2 data may fuel rate hike bets, boosting Yen demand, and USD/JPY fall toward 140.
USD/JPY Outlook: High Volatility Driven by Trade and Data
- Bullish Yen Scenario: Positive Japanese data, hawkish BoJ cues, or rising trade tensions could drag 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: Weaker Japanese economic data, dovish BoJ rhetoric, or easing trade tensions may drive the pair above 145 toward 146.285.
US Inflation to Guide Fed Rate Cut Expectations and Dollar Trends
In the US, inflation data will drive expectations for Fed policy.
Key events include:
- Consumer Inflation Expectations (June 9) to hold steady at 3.6% in May.
- US Annual Inflation Rate (June 11) to rise from 2.3% in April to 2.5% in May.
- Initial Jobless Claims (June 12) to fall from 247k (week ending May 31) to 239k (week ending June 7).
- Michigan Inflation Expectations and Consumer Sentiment (June 13). Inflation expectations to hold steady at 6.6% in June, while consumer sentiment is expected to rise from 52.2 in May to 53.5 in June.
Hotter-than-expected inflation data could sink expectations of a 2025 Fed rate cut, boosting US dollar appetite. Conversely, softer inflation readings may revive Fed rate cut hopes, pressuring US dollar demand. The US CPI Report will be the key economic data release.
Meanwhile, consumer sentiment (due June 13) will give insights into the consumption and economic outlook. Since private consumption makes up over 60% of US GDP, improving consumer sentiment could indicate higher consumption, fueling inflation. However, an unexpected fall may support a more dovish Fed stance.
Potential Price Scenarios:
- Bullish US Dollar Scenario: Hotter US inflation and improving consumer sentiment could drive USD/JPY above 145 toward 146.285.
- Bearish US Dollar Scenario: Softer inflation and waning consumer sentiment may drag USD/JPY toward 140.
Short-term Forecast:
USD/JPY’s near-term trajectory depends on trade-related updates, economic data, and central bank commentary. That said, trade developments 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 remains below the 50-day and 200-day EMAs, maintaining a bearish technical outlook.
A breakout above the 50-day EMA could pave the way to testing resistance at the May 29 high of 146.285. Sustained momentum could drive the pair toward the May 12 high of 148.647.
On the downside, a drop below last week’s low of 142.367 exposes the 140.309 support level and the September 2024 low of 139.576.
The 14-day Relative Strength Index (RSI) sits at 52.12, indicating potential for further upside before entering overbought territory (RSI > 70).