USD/JPY Forecast: Dollar Advances on Weak Japanese Spending

The yen came under renewed pressure after June’s household spending data came in well below expectations. Month-over-month, the index dropped from 4.6% to –5.2%, compared to forecasts of –3.0%. Year-on-year, the figure slowed from 4.7% to 1.3% (vs. 2.8% expected). This marked slowdown in Japanese household expenditures signals a likely drag on domestic demand, raising risks for future inflation, which remains above the Bank of Japan’s 2.0% target for now.

Adding to the negative backdrop, investors were left unimpressed by the BoJ’s summary of opinions, which underscored uncertainty over the impact of new US tariffs. Policymakers warned of potential damage to Japan’s industrial sector due to sharply higher import costs, particularly in the auto industry. While a few officials noted the risk of persistent inflation and one even floated the possibility of a rate hike later this year, overall guidance remains cautious and non-committal.

Meanwhile, the US Federal Reserve’s next move also remains clouded in uncertainty. The growing influence of White House-aligned voices within the Fed has traders betting on an extended period of steady interest rates, lending further support to the greenback against the yen.