Sun, June 16, 2024

USD/JPY Outlook: Q1 Capital Spending Falls to 12.2%

USD/JPY

Quick Look:

  • Expected to rise by 12.2% in Q1 2024, JPY down from 16.4% in Q4 2023, indicating potential cost-saving measures by companies.
  • Improved from 49.6 to 50.5 in May, showing slight demand improvement but unlikely to alter BOJ policy.
  • Forecasted at 49.8 for May, reflecting a soft landing for the US economy with little impact on Federal Reserve rate decisions.

Several significant events are shaping the USD/JPY exchange rate forecast. In Japan, capital spending for the first quarter of 2024 is expected to increase by 12.2% year-over-year, a notable decrease from the 16.4% rise observed in the fourth quarter of 2023. This decline suggests that Japanese companies might be implementing cost-saving measures. Such measures could lead to a slower rate of job creation, potentially impacting wage growth and, consequently, household spending.

Jibun Bank Manufacturing PMI Rises to 50.5 in May

In addition to capital spending data, the Japanese Jibun Bank Manufacturing PMI offers insights into the economic landscape. The preliminary data for May recorded a PMI of 49.6, while the final JPY figure improved to 50.5. This slight uptick hints at an improving demand environment. However, it is not expected to influence the Bank of Japan’s monetary policy path significantly.

US ISM Manufacturing PMI Predicted at 49.8 for May

On the other side of the Pacific, the US ISM Manufacturing PMI for May is forecasted at 49.8, up from April’s 49.2. This slight improvement aligns with expectations of a soft landing for the US economy, yet it is unlikely to alter the Federal Reserve’s current rate trajectory. Furthermore, the finalized S&P Global Manufacturing PMI is considered secondary to the ISM data, less influencing market expectations.

Tokyo’s Inflation and BOJ’s Interest Rate Considerations

The Bank of Japan focuses on the services sector, household spending, and inflation trends. With Tokyo experiencing higher-than-expected inflation, there are considerations regarding the timing of a potential interest rate hike. However, these factors are closely monitored and are yet to lead to any immediate changes in policy.

USD/JPY Bullish: Price Above 50- and 200-Day EMAs

The daily chart’s USD/JPY price action shows that the current level is above both the 50-day and 200-day exponential moving averages (EMAs), indicating bullish momentum. There is potential for the currency pair to return to the 158 handle and possibly move towards the 160 handle. A breakout beyond the 160 mark could target the high of 160.209 observed on April 29. Conversely, a break below the 156.5 handle might signal a decline towards the 50-day EMA. The Relative Strength Index (RSI) currently stands at 60.33, suggesting that the USD/JPY could rise to 160.209 before entering overbought territory.

Factors Influencing Short-Term USD/JPY Movements

Several factors will influence the USD/JPY exchange rate in the short term. These include the performance of US service sector PMIs, the upcoming US jobs report, and ongoing speculation regarding a Federal Reserve rate hike. There is a noticeable tilt towards the US dollar, driven by monetary policy divergence between the US and Japan. This divergence continues to be a critical driver of the exchange rate dynamics between the USD and JPY.

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