Japanese Yen Weekly Forecast: USD/JPY Slips Below 150 as BoJ Rate Hike Bets Intensify

USD/JPY Hovers Below 150 Amid BoJ Rate Hike Speculation

How far can the USD/JPY drop on speculation about a December Bank of Japan rate cut?

Here’s what traders need to know.

The USD/JPY pair advanced by 0.17% to 149.962 in the week ending December 6. After sliding to a December 3 low of 148.639, the pair rebounded to a December 4 high of 151.226 before dropping below the 150 mark. Speculation about a December Bank of Japan rate hike intensified, supporting Japanese Yen demand.

Japan GDP Holds the Key to a BoJ Rate Hike

On Monday, December 9, Japan’s finalized GDP numbers for Q3 2024 will be in focus. According to preliminary data, the economy expanded by 0.2% quarter-on-quarter in Q3, down from 0.7% in Q2 2024.

Downward revisions to Q3 GDP figures could temper investor bets on a December BoJ rate hike. The BoJ previously stated that the economy must trend in line with its projections to support raising interest rates. Falling bets on a December move could weigh on the Japanese Yen.

Conversely, an upward revision may boost expectations of the anticipated December hike, fueling Japanese Yen demand.

Private consumption accounts for over 60% of Japan’s economy and is another critical indicator.

Preliminary data showed consumption rose by 0.9% quarter-on-quarter in Q3 2024, consistent with Q2 2024 trends. Robust private consumption may fuel demand-driven inflation, increasing the chances of a December rate hike.

 

Producer Prices and Inflation Trends

On Wednesday, December 11, producer prices could influence sentiment toward consumer price trends. Economists expect producer prices will rise 3.4% year-on-year in November, mirroring October’s trend.

Higher-than-expected producer prices could drive consumer prices higher as producers raise prices in an increasing demand environment. A higher inflation outlook would support bets on a December BoJ rate hike. Conversely, softer figures may lower bets on a December move on expectations of softer inflation.

In October, household spending jumped 2.9% month-on-month, reversing a 1.3% fall in September. Continued strong spending may sustain upward pressure on producer prices and inflation.

Tankan Surveys to Give Insights into Q4

On Friday, December 13, the all-important Tankan survey will provide insights into Q4 demand.

Economists project the Tankan Large Non-Manufacturing Index to drop from 34 in Q3 2024 to 32 in Q4 2024. Furthermore, economists also expect the Large Manufacturing Index to fall modestly.

Better-than-expected numbers would signal a resilient demand environment, supporting expectations for a December rate hike. Investors should give the Non-Manufacturing data more weight as it accounts for over 70% of Japan’s GDP and is a BoJ focal point.

Potential Outcomes for USD/JPY

While robust private consumption bolsters demand-driven inflation, GDP softness may temper overall rate hike expectations, creating mixed signals for the BoJ. A more hawkish BoJ rate path could pull the USD/JPY pair toward 147.5. Conversely, weaker data may temper bets on a December move, potentially driving the pair toward 153.5.

Diverging Views Within the BoJ

On Thursday, Bank of Japan policymaker Toyoaki Nakamura fueled uncertainty about a December hike, projecting inflation to remain below the Bank’s 2% target. Nakamura also doubted wage growth would be sustainable, a key consideration for the BoJ.

Conversely, BoJ Governor Kazuo Ueda recently highlighted the economy and inflation aligned with targets.

These conflicting views among BoJ policymakers highlight the uncertain rate hike outlook, emphasizing the importance of upcoming economic data.

Expert Views on the Bank of Japan Rate Path

Seabridge Gold Investor, which tracks factors driving metal prices, remarked on recent economic data, saying,

“The Bank of Japan was given another reason to hike rates in a few weeks after October base pay came out and it rose 2.7% y/o/y, up from 2.5% in the month before and that is the fastest rate since 1992. The Trump Administration may get some help with a lower dollar.”

US CPI Data Critical for USD/JPY Trends

While sentiment toward a BoJ rate hike is crucial for USD/JPY trends, US economic data will also play a role.

On Wednesday, the highly anticipated US CPI Report could cement bets on a December Fed rate cut. Economists expect an annual inflation rate of 2.7% in November, up from 2.6% in October.

Hotter-than-expected inflation could reduce expectations of a December Fed rate cut, driving US dollar demand. Conversely, weaker numbers could bolster bets on a December move, weighing on the greenback.

Beyond headline inflation, core inflation trends also need consideration, with core inflation at 3.3% in October. An upswing in core inflation could give the Fed hawks a stronger case for the policy status quo.

While CPI trends remain the primary focus, producer price trends are a leading inflation indicator, influencing near-term Fed rate cut expectations.

Economists forecast producer prices to increase by 2.5% year-on-year in November, up from 2.4% in October. Higher producer prices could signal a pickup in inflation, potentially reducing bets on a December Fed rate cut. Conversely, a fall toward the Fed’s 2% inflation target may cement bets on a December move.

Other stats include weekly jobless claims. However, barring an unexpected spike in claims, the numbers will likely play second fiddle to the US CPI Report and producer prices.

In summary, rising bets on a December Fed rate cut on softer inflation could drag the USD/JPY pair below 147.5. Conversely, hotter-than-expected inflation data may drive the pair toward 153.5.

Short-term Forecast:

Near-term USD/JPY trends will hinge on upcoming Japanese and US data. Expectations of a narrowing in the interest rate differential between Japan and the US will weigh on the USD/JPY pair. However, falling bets on the anticipated December hike may push the pair toward 153.5.

Investors should stay alert, monitoring real-time data, central bank views, and expert commentary to adjust trading strategies accordingly. Don’t miss crucial market movements. Follow our real-time FX updates and stay ahead in the markets here!

USD/JPY Price Action

Daily Chart

The USD/JPY sits below the 50-day and 200-day EMAs, signaling bearish momentum tied to BoJ and Fed policy expectations.

A USD/JPY breakout from the 200-day EMA could support a move toward the 50-day EMA and the 151.685 resistance level. A break above the 151.685 resistance level may bring the 153.5 level and trend line into play.

Investors should consider the economic indicators and central bank commentary, potentially affecting USD/JPY price trends.

Conversely, a break below the 148.529 support level could enable the bears to target the 147.5 level. A fall through 147.5 may signal a fall toward the 145.891 support level.

The 14-day RSI at 40.95 suggests a USD/JPY drop to 147.5 before entering oversold territory (RSI< 30).

Dive deeper into the trends. View our latest USD/JPY chart analysis for technical insights.