USD/JPY Daily Forecast: Machinery Orders Spike and BoJ Rate Path Uncertainty Looms

Machinery Orders Signal Improving Demand

In a significant development for the Japanese economy, machinery orders increased by 2.1% in June, following a 3.2% decline in May. This uptick highlights improving demand, potentially boosting business confidence and leading to higher wages. Rising wages could fuel household spending and demand-driven inflation, elevating expectations for a possible Bank of Japan (BoJ) rate hike in Q4 2024.

BoJ Rate Path in Question

Investors are keenly observing comments from the BoJ, as recent indications suggest a continuation of monetary easing. BoJ Deputy Governor Uchida Shinichi emphasized the need for maintaining current interest rates due to extreme volatility in domestic and global markets. Former BoJ Board Member Makoto Sakurai echoed this sentiment, indicating uncertainty around future rate hikes.

US Economic Calendar Impact

• The US Leading Economic Index (LEI) is set to influence USD demand, with expectations of a 0.3% decline for July.
• Comments from FOMC member Christopher Waller also warrant attention, especially in the context of potential rate cuts.

Expert Insights on Fed Rate Path

Arch Capital Global Chief Economist Parker Ross noted a resurgence in core services inflation, a key concern for the Fed. These economic indicators will significantly impact both USD/JPY trends and investor strategies.

Short-term Forecast: Bearish

The short-term outlook for USD/JPY indicates potential bearish trends influenced by the US LEI, central bank guidance, and Services PMI data.