FX Empire: Japan Household Spending
Potential BoJ Monetary Policy Actions
Beyond the numbers, investors should monitor intervention threats and BoJ commentary. Concerns about the effect of a weak Yen on the Japanese economy could influence the government and the BoJ. Intervention or BoJ support for a July interest rate hike and aggressive cuts to Japanese Government Bonds could potentially push the USD/JPY towards 150.
Expert Opinions on BoJ Strategies
Last week, Finance Minister Shunichi Suzuki also talked about an intervention, saying,
“We would respond appropriately to excessive currency moves.”
However, Bruegel Senior Fellow Alicia Garcia Herrero believed monetary policy tools could be more effective, saying,
“Bank of Japan to start quantitative tightening, which could support the Yen more than intervention.”
Given these dynamics, investors should be mindful of potential downside risks for the USD/JPY. While economic indicators from Japan could send mixed signals, moves to bolster the Yen could materially impact the USD/JPY pairing.
Beyond the Japanese economic calendar, economic data from the US may also influence monetary policy intentions for the BoJ and the Fed.
Overview of the US Dollar Outlook
Meanwhile, it will be another pivotal week for the US dollar amidst ongoing speculation about a September Fed rate cut.
ISM Manufacturing PMI Expectations
On Monday, ISM Manufacturing PMI figures will garner investor interest. While accounting for less than 30% of the US economy, the numbers may influence investor expectations of a soft US economic landing.
Economists forecast the ISM Manufacturing PMI to increase from 48.7 to 49.0 in June. The PMI will unlikely influence sentiment toward the Fed rate path despite the likely interest. The services sector remains the focal point vis-à-vis the US economy and inflation trends.
Job Openings and Quits Data
However, JOLTs job openings and job quits could influence investor expectations of a September rate cut.
Economists forecast job openings to fall from 8.059 million in April to 7.850 million in May. Additionally, economists expect job quits to decline from 3.507 million to 3.500 million.
A sharp fall in job openings and quits could signal a weakening US labor market. Weaker labor market conditions might impact wage growth and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.
On Wednesday, the US labor market will be in focus again alongside the all-important services sector.
ADP Employment Report and Jobless Claims
Economists predict the ADP to report a 170k increase in employment in June after a 152k rise in May.
Additionally, economists forecast initial jobless claims to increase from 233k to 235k in the week ending June 29.
A less marked increase in the ADP numbers and a sharper rise in jobless claims could fuel speculation about a September rate cut.
Importance of ISM Services PMI and Sub-components
However, investors should consider the ISM Services PMI and its sub-components. The services sector accounts for over 70% of the US economy and remains a driving force behind inflation.
Economists forecast the ISM Services PMI to fall from 53.8 to 52.5 in June. Furthermore, economists expect the ISM Services Prices Index to drop from 58.1 to 57.8.
Slower service sector activity and softer input price pressures would support investor expectations of a September rate cut.
Will the US Jobs Report Solidify Expectations of a September Fed Rate Cut?
Friday could be a critical day for the US dollar, with the crucial US Jobs Report in the spotlight.
Weaker wage growth, an unexpected rise in the US unemployment rate, and a less marked-than-expected rise in nonfarm payrolls could sink the USD/JPY. Forecasts are as follows:
Average hourly earnings to increase 3.6% year-on-year in June after rising 4.1% in May.
Nonfarm payrolls to rise by 180k (May: +272k).
US unemployment rate: 4% (May: 4%).
Last week, Arch Capital Global Chief Economist Parker Ross reacted to recent US jobless claims trends, stating:
“Continuing claims of 1,839k (sa) surprised more meaningfully to the upside for the week ending June 15 (1,828k cons) but was just above my estimate of 1,835k. […]. Continuing claims still reflect a more substantial softening of the labor market.”
The jobless claims data for the week ending June 22 suggested a higher unemployment rate.
