Japanese Yen Forecast: Will USD/JPY Break 139.5? BoJ and US Labor Market in Focus

Foreign Bond and Stock Investments in Focus

On Thursday, September 19, foreign bond and stock investment trends are likely to influence the USD/JPY pair.

Inflow and outflow trends could dictate Yen strength, demand for Japanese goods, and inflation. Large inflows could strengthen the Yen, pulling the USD/JPY lower. A stronger Yen could increase the cost of Japanese goods and services while reducing import prices.

Rising costs for goods and services could affect overseas demand and the Japanese economy, which has a trade-to-GDP ratio of around 47%. Deteriorating trade terms and a weaker economic backdrop could soften wage growth and demand-driven inflation, easing pressure on the BoJ to hike rates.

A stronger Yen may also reduce import prices, which lowers the cost of imported goods. This might force Japanese firms to lower prices to remain competitive. These could be deflationary triggers that dampen headline inflation and reduce the need for the Bank of Japan to raise interest rates.

While the stronger Yen could fuel deflationary pressures, increasing consumer purchasing power might counter some of the deflationary effects by driving consumption.

With the Bank of Japan delivering its monetary policy decision on Friday, investors may take a greater interest in today’s foreign investment flows.

Bank of Japan Policy Guidance and Expert Views

Unlimited Funds Chief Investment Officer Bob Elliot discussed drivers for the Yen and the Bank of Japan’s policy goals, stating,

“Japan doesn’t have an inflation problem. There is still little urgency for the BoJ to do much based on macro conditions regardless of rhetoric, making the Fed the main driver of JPY for the foreseeable future, not the BoJ.”

Following the Fed’s overnight 50-basis point rate cut, the BoJ may have leeway to signal a Q4 2024 rate hike.

According to a CNBC International survey, 32 analysts in the poll expect the BoJ to hold interest rates steady on Friday. The results for October and December reflected a high degree of uncertainty as Q4 approaches. 56.25% of those polled expect the BoJ to leave rates unchanged in October, with 43.75% predicting a hold in December.

US Labor Market in the Spotlight

Beyond the data from Japan, US labor market data will require consideration. Economists expect initial jobless claims to remain steady at 230k in the week ending September 14.

A spike in jobless claims could rekindle fears of a US hard landing. Weaker labor market conditions could affect wage growth and consumer spending, which contributes over 60% to the US GDP. Deteriorating labor market conditions could fuel speculation about an aggressive November Fed rate cut to bolster the economy. A more dovish Fed rate path may push the USD/JPY below 139.5.

Other stats include housing sector-related data and the Philly Fed Manufacturing Index. However, labor market data will likely have more impact on the USD/JPY pair.

Short-term Forecast for USD/JPY

USD/JPY trends will depend on the US labor market data and Friday’s BoJ interest rate decision. A spike in jobless claims and a hawkish Bank of Japan stance on interest rates may push the USD/JPY pair below 139.5. Currently, the BoJ and Fed monetary policy stances suggest a narrowing interest rate differential, signaling downward pressure for the USD/JPY.

Investors should remain alert, with the BoJ’s interest rate decision crucial for the USD/JPY pair. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay ahead of the market with our expert insights.

USD/JPY Technical Analysis

Daily Chart

The USD/JPY remains well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY return to the 142.500 level could give the bulls a run at the 143.495 resistance level. Furthermore, a breakout from the 143.495 resistance level could signal a move toward the 145.891 resistance level.

Economic indicators from Japan, US labor market data, and central bank commentary require consideration.

Conversely, a drop below the 141.032 support level could give the bears a run at the September 16 low of 139.576. A return to 139.576 may signal a drop toward the 137.712 support level.

The 14-day RSI at 38.60 indicates a USD/JPY break below the 141.032 support level before entering oversold territory.