USD/JPY forecast after strong Japan household spending data

By: Crispus Nyaga
Crispus Nyaga
Crispus is a Financial Analyst for Invezz covering the stock, cryptocurrency and forex markets. He’s an experienced analyst with… read more.
on Jul 6, 2021
  • The USD/JPY pair declined after the strong Japan household spending data.
  • Household spending rose by 11.6% year-on-year in May.
  • The pair will next react to the latest US services PMI data.

The Japanese yen (USD/JPY) strengthened against the US dollar after the relatively positive economic data. The pair declined to 110.84, which was about 0.75% below the highest level last week.

Japan household spending

Household consumption is an important part of the Japanese economy. As such, traders follow these numbers closely as they try to gauge the strength of the economy.

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Data published by the Ministry of Finance showed that household spending increased by 11.6% in May from a year earlier. This increase was better than the median estimate of 10.9% and was the second-largest since the ministry started collecting the data.

The spending declined by 2.1% on a month-on-month basis, better than the median estimate of -3.7%. Precisely, the spending of an average household with two or more people rose to $2,500. Spending increased for the previous three consecutive months.

Meanwhile, the USD/JPY also reacted to the latest average cash earnings. The earnings increased from 1.4% in April to 1.9% in May. Further, overtime pay increased from 1.4% to 1.9% and by 20.70% on a year-on-year basis. Overtime pay is an important number since it shows how busy companies in a country are. Recent numbers by Markit showed that the country’s manufacturing and services PMIs also did well in June.

The USD/JPY will next react to the latest US services and non-manufacturing PMI data. Economists expect the data to show that the two remained above 60 in June as the growth accelerated. Later this week, it will react to the minutes by the Federal Open Market Committee (FOMC). The bank decided to leave interest rates and quantitative easing policies unchanged during the meeting.

USD/JPY technical analysis

USD/JPY chart

The three-hour chart shows that the USDJPY has been in a downward trend recently. The pair has dropped from a high of 111.66 to the current 1110.85. The pair is approaching the lower side of the blue ascending channel. Further, it has moved below the 25-day exponential moving average (EMA) while the two lines of the MACD have moved below the neutral line. The pair is also between the lower and middle lines of the Bollinger Bands. Therefore, the path of least resistance for the USD/JPY is lower, with the next key support being at 110.00.

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