Japanese Yen Weekly Forecast: BoJ Rate Decision and U.S. Jobs Report Set USD/JPY Path

USD/JPY Extends Weekly Winning Streak to Four

The USD/JPY rallied 1.87% to 152.235 in the week ending October 15, marking a four-week winning streak. On Monday, the USD/JPY dipped to a weekly low of 149.081 before climbing to a mid-week high of 153.184. The USD/JPY revisited 153 for the first time since July 31.

Japan’s Election Result and BoJ Policy

On Sunday, October 27, Prime Minister Shigeru Ishiba will attempt to navigate the Liberal Democratic Party coalition to a victory in Japan’s general election. A victory would maintain the political status quo, enabling the Bank of Japan to continue its monetary policy normalization.

Before Sunday’s general election, Prime Minister Ishiba had assured the markets the government would not interfere with the BoJ’s monetary policy goals.

An opposition party victory could fuel speculation about fiscal stimulus measures, which may have blocked the BoJ from further rate hikes.

Japan’s Labor Market and the BoJ Rate Path

Labor market data from Japan will come under focus on Tuesday, October 29. Economists expect Japan’s unemployment rate to remain at 2.5% in September. Unless there is an unexpected unemployment move, the jobs/applications ratio may have more impact on buyer demand for the Japanese Yen.

Economists forecast the jobs/application ratio to increase from 1.23 in August to 1.25 in September. An upswing in jobs compared to applications could signal an improving labor market, potentially pushing wages higher. Rising wages may fuel household spending and demand-driven inflation, supporting a possible Q4 2024 BoJ rate hike.

Consumer Confidence and Retail Sales in Pre-BoJ Focus

On Wednesday, October 30, the focus will shift to consumer confidence trends, a crucial gauge for private consumption. Economists expect the Consumer Confidence Index will rise from 36.9 in September to 37.0 in October.

Better-than-expected numbers could signal a pickup in consumer spending, fueling demand-driven inflation. Increasing inflationary pressures could raise investor bets on a December Bank of Japan rate hike.

Amid speculation about the timing of a BoJ rate hike, investors should consider retail sales figures on Thursday, October 31. Economists forecast retail sales to increase by 2.3% year-on-year in September, down from 2.8% in August. Softer retail sales could dampen demand-driven inflation, supporting bets on the BoJ maintaining interest rates at 0.25% in October.

Bank of Japan Interest Rate Decision and Rate Path

On Thursday, the Bank of Japan will announce its penultimate monetary policy decision for 2024. Economists expect the BoJ to maintain interest rates at 0.25%. Barring a surprise interest rate hike, the BoJ’s quarterly outlook report and commentary will be crucial for near-term USD/JPY trends.

Support for a December 2024 BoJ rate hike could pull the USD/JPY below 150. Conversely, calls for caution amidst an uncertain economic outlook could dampen demand for the Yen, potentially driving the USD/JPY toward 155.

Additional Economic Indicators

Other economic indicators include industrial production (Thurs) and finalized Manufacturing PMI (Fri) figures. However, these will likely have a limited impact on the USD/JPY, with the BoJ monetary policy decision the main event.

Expert Views on the Bank of Japan Rate Path

In a recent Reuters poll, economists expect the BoJ to hold interest rates steady this month while divided about a December rate hike. 25 out of 49 economists polled expect the BoJ to maintain interest rates through Q4 2024, while 39 of 45 expect the BoJ to raise interest rates to 0.5% by March 2025.

Natixis Asia Economist Alicia Garcia Herrero discussed the BoJ and possible monetary policy stance, stating,

“When the underlying inflation remains soft, the BoJ would find it challenging to further tighten because not only import prices declined in September but also speculative position to weaken the Yen haven’t been built yet. […] The Bank is unlikely to deviate next week from its purchase plan announced in July to protect its credibility. Therefore, the BoJ is anticipated to patiently wait for the best timing to hike with a hawkish stance at the October meeting.”

US Economic Indicators: Inflation and Labor Market Crucial for the Fed

JOLTs job openings data, on Tuesday, October 29, will kick start a pivotal week for the US dollar. A modest fall in job openings could signal a resilient US labor market, potentially reducing bets on a December Fed rate cut.

The Personal Income and Outlays report will also draw scrutiny on Thursday, October 31. Higher personal income/spending and the Core PCE Price Index could sink bets on a December Fed rate cut.

However, the US Jobs Report on Friday, November 1, could ultimately dictate the Fed rate path as the Fed navigates a soft landing. A steady unemployment rate of 4.1% and a 100k or more increase in nonfarm payrolls could signal a soft landing. Stable labor market conditions may allow the Fed to delay post-November rate cuts, helping to sustainably reach the 2% inflation target.

A more hawkish Fed rate path may drive the USD/JPY toward 155. Conversely, indicators such as rising unemployment and softer wage growth may fuel bets on a December Fed rate cut. A more dovish Fed rate path could pull the USD/JPY below 150.

Short-term Forecast:

Near-term USD/JPY trends will hinge on the Bank of Japan’s monetary policy decision and US economic indicators. A hawkish Bank of Japan tilt could overshadow upbeat US data, potentially supporting a USD/JPY drop below 150. Conversely, a non-committal BoJ on the timing of rate hikes and upbeat US economic data may drive the USD/JPY toward 155.

Investors should remain vigilant in a pivotal week for the USD/JPY pairing. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

The USD/JPY sits comfortably above the 50-day and 200-day EMAs, confirming bullish price trends.

A USD/JPY break above the trend line would support a move toward the October 23 high of 153.184. Furthermore, a breakout from 153.184 could allow the bulls to test selling pressure at 155.

Investors should consider the economic indicators from Japan and the US, and the BoJ monetary policy decision for USD/JPY price trends.

Conversely, a break below the 151.685 support level may signal a fall toward the 200-day EMA. A fall through the 200-day EMA could bring the 148.529 support level into play.

The 14-day RSI at 66.91 suggests a USD/JPY return to 153.184 before entering overbought territory.