Japanese Exports in Focus amid BoJ Scrutiny
On Wednesday, October 22, Japanese trade data will provide insights into demand for Japanese goods. A rebound in imports and exports would suggest the drop in US tariffs on Japanese shipments to 15% could limit the impact on the economy.
The BoJ remains focused on the potential effect of US tariffs on demand, prices, and the labor market. Strong figures could raise expectations of a near-term BoJ rate hike. On the other hand, a continued fall in imports and exports may pressure the BoJ to delay rate hikes, weighing on the yen.
For context, imports and exports fell 0.5% and 0.1%, respectively, year-on-year in August.
National Inflation and Services PMI Figures to Spotlight the Bank of Japan
On Friday, October 24, inflation data and Services PMI will influence the Bank of Japan’s rate path.
Economists forecast the annual inflation rate to rise from 2.7% in August to 2.9% in September, while expecting the so-called core-core inflation rate to ease to 3.2% (August: 3.3%). Forecasts indicate that underlying inflation would continue to hold well above the BoJ’s 2% target, supporting a more hawkish policy stance.
Economists forecast the S&P Global Services PMI to fall to 53 in October, down from 53.3 in September.
A sharper drop in the PMI, softer prices, and job cuts could sink expectations of a near-term BoJ rate hike, while stronger data may raise bets on a Q4 rate hike.
The PMI data could overshadow the inflation numbers, given that the services sector contributes over 70% to Japan’s GDP. The services sector is a focal point for the BoJ, with sector inflation trends affecting the Bank’s inflation outlook and rate path.
Bank of Japan in the Spotlight as Markets Shift Rate Hike Bets
While the economic data will influence demand for the yen, traders should closely monitor BoJ commentary. BoJ policy makers Hajime Takata (October 20) and Ryozo Himino (October 21) are scheduled to speak. Views on political developments, economic data, and monetary policy will influence demand for the yen.
Follow our real-time updates to stay ahead of USD/JPY market developments.
USD/JPY Outlook: Economic Indicators and the BoJ
- Bullish Yen Scenario: Strong Japanese data, an LDP loss, or hawkish BoJ rhetoric could push USD/JPY toward 147.5.
- Bearish Yen Scenario: Weak data, an LDP majority coalition, or dovish BoJ comments may send the pair toward 155.
Traders face the prospect of another light US economic calendar after a tenth US Senate vote fell short of the required 60 to pass a stopgap funding bill. A continued US government shutdown, now 19 days and the third-longest in history, would delay official economic data releases.
A continued shutdown would leave US-China trade developments and Capitol Hill to influence USD/JPY trends. There are no Fed speeches as the blackout period started on October 18.
If the US government reopens on October 20:
- Initial jobless claims (October 23)
- CPI Report (October 24): Forecast headline inflation to rise from 2.9% in August to 3.1% in October.
- S&P Global Services PMI: Expected to fall from 54.2 in September to 53.5 in October.
Additionally, a government reopening could expedite the release of delayed reports, including September’s US jobs report, retail sales, and producer prices.
There are three potential scenarios for traders to consider this week.
Weaker-than-expected US labor market data and softer inflation, or further delays to key data, could raise bets on more aggressive Fed rate cuts in late October and December. A more dovish Fed policy stance would weaken demand for the US dollar and send the USD/JPY pair lower.
A marked deterioration in the labor market, coupled with higher inflation, may increase risks of stagflation. Stagflation risks may fuel uncertainty about the Fed rate path beyond October.
Stronger-than-expected labor market data and increasing inflationary pressures could temper expectations for aggressive Fed rate cuts, boosting demand for the US dollar.
Short-term Forecast:
- Bullish US Dollar Scenario: Strong US economic data may send USD/JPY toward 155.
- Bearish US Dollar Scenario: Weak US data could push USD/JPY toward 147.5.
USD/JPY Price Action
Daily Chart
On the daily chart, USD/JPY remains above the 50- and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias.
A break above 152 could pave the way to the October 10 high of 153.274. A sustained move through 153.274 may open the door to testing the February high of 155.880.
On the downside, a break below 150 could bring the 149.358 support level into play. If breached, the 50-day and 200-day EMAs and 147.5 would be the next key support levels.
