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Japan Services PMI and Inflation to Spotlight the BoJ
On Friday, February 21, crucial economic indicators, including Services PMI and inflation data, could dictate the BoJ’s near-term policy outlook.
Economists forecast Japan’s Jibun Bank Services PMI to drop from 53.0 in January to 52.2 in February. Slower services sector activity and softer prices may lower bets on a near-term BoJ rate hike. However, rising prices could support a more hawkish BoJ stance.
Economists expect Japan’s core inflation rate to increase to 3.1% in January, up from 3.0% in December, surpassing the BoJ’s 2% target.
A higher inflation reading and services sector prices could cement expectations for a BoJ rate hike in H1 2025. Conversely, softer inflation and a declining services sector price trend could temper rate hike bets, pressuring the Yen.
Potential USD/JPY Moves
Japan’s key economic indicators and speculation about a BoJ rate hike will be key drivers of USD/JPY trends.
- Bullish Yen Case: Upbeat data and hawkish sentiment toward the BoJ rate path could drag the USD/JPY pair below 150.
- Bullish USD Case: Softer readings and falling bets on a BoJ rate hike could push the pair toward 155.
Expert Views on the Bank of Japan’s Rate Outlook
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on Japan’s recent wage growth figures:
“Japanese wages growth remains up…supporting the case for further gradual BoJ tightening.”
December’s average cash earnings rose 4.8% year-on-year, up from 3.9% in November. Wage trends are critical for the BoJ’s policy path, as demand-driven inflation remains a core focus.
US Data and Fed Policy Implications
Meanwhile, in the US, initial jobless claims on February 20 will provide insights into labor market strength.
Economists forecast initial jobless claims to increase from 213k (week ending February 8) to 216k (week ending February 15).
A spike in jobless claims may signal a pullback in consumer spending, potentially dampening demand-driven inflationary pressures. A softer inflation outlook may boost bets on an H1 2025 Fed rate cut. Conversely, a drop in claims would support wage growth and consumer spending, supporting a more hawkish Fed rate path.
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