USD/JPY Daily Forecast: Bearish Pressure Mounts as BoJ and Fed Diverge

USD/JPY Under Pressure Amid Bank of Japan and Fed Policy Shifts

On Monday, August 26, the USD/JPY remains a focal point after Friday’s drop below 145.

Monetary Policy Divergence and USD/JPY Trends

On Friday, Central Bank monetary policy divergence was in full view. During the Asian session, Bank of Japan Governor Kazuo Ueda stated further rate hikes were likely if inflation and the economy aligned with forecasts.

The USD/JPY dipped to a low of 145.290 as investors reacted to the prospects of further rate hikes.

Later in the Friday session, Fed Chair Powell signaled a possible rate cut, sending the USD/JPY to a session low of 144.045.

The prospect of further BoJ rate hikes and multiple Q4 2024 and Q1 2025 Fed rate cuts could significantly narrow the interest rate differential.

Bank of Japan and Fed Neutral Rates Signal USD/JPY Drop to 100

On August 8, the Bank of Japan’s Summary of Opinions suggested a neutral target rate of around 1%. Experts also speculated that the Federal Funds Rate should be closer to 1%.

ARKInvest founder, CEO, and CIO Cathie Wood recently said,

“The metals to gold ratio suggests that the 10-year Treasury bond yield should be around 2% today, not where it is at 3.8% or last October’s 5%. If the 10-year Treasury should yield ~2% today, should the Fed funds rate be closer to 1%?”

The possibility of a zero interest rate differential between the US and Japan suggests a longer-term USD/JPY trend toward 100.

Japan Economic Calendar Pivotal for the Japanese Yen

As the BoJ takes a more hawkish policy stance, this week’s economic data may be crucial for the Japanese Yen.

On Friday, inflation, labor market, and retail sales figures will spotlight the BoJ and the Japanese Yen. Higher retail sales, a stable labor market, and rising inflation could signal a Q4 2024 BoJ rate hike.

Stable labor market conditions may drive wage growth, fueling household spending and demand-driven inflation. The BoJ could raise interest rates to support price stability.

Last week, the Statistics Bureau of Japan reported that Japan’s core inflation rate rose from 2.6% in June to 2.7% in July. On Monday, August 26, investors should monitor for reactions to Friday’s inflation numbers. Support for a Q4 2024 rate hike could send the USD/JPY below 143.500.

Expert Views on the USD/JPY and the BoJ Rate Path

Thomas Thornton, founder of Hedge Fund Telemetry, commented on USD/JPY trends, stating,

“USDJPY 144.18 is the level I am watching […]. Is anyone left with the carry trade still on? It could be another interesting Sunday night.”

Thornton also highlighted a ‘potential price objective of 133.36.’

Meanwhile, IMF Chief Economist Pierre-Olivier Gourinchas supported a more hawkish BoJ rate path, reportedly saying,

“Certainly in our assessment, there is scope for further normalization of monetary policy going forward, and policy rates to increase gradually for some time.”

US Economic Calendar: Key Indicators to Watch

Later in the Monday session, durable goods orders will draw investor interest.

Economists forecast durable goods orders will increase by 4.0% in July, after a 6.6% decline in June.

A rebound in orders could ease immediate fears of a hard landing, possibly reducing bets on a 50-basis point Fed rate cut.

While durable goods orders could offer insights into demand, the labor market and inflation remain pivotal.

The jobless claims (Thurs) and the Personal Income and Outlays Report (Fri) may have a more significant impact on USD/JPY trends.

Expert Views on Powell’s Speech and the US Labor Market

Growing concerns about the US labor market fueled speculation about a possible 50-basis point September Fed rate cut.

Thomas Thornton remarked on Fed Chair Powell’s speech at the Jackson Hole Symposium, saying,

“The takeaway from Powell that stood out to me is the concern for rising unemployment. As a reminder when it starts to rise, it continues for multiple quarters/years.”

Short-term Forecast: Bearish

USD/JPY trends may depend on inflation data and US labor market figures. Higher-than-expected Japanese inflation could fuel BoJ rate hike bets, possibly sending the USD/JPY below 143. Conversely, softer US labor market conditions and inflation could raise expectations of a 50-basis point September Fed rate, further impacting the USD/JPY.

Investors should remain alert. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 145 could support a move toward the 145.891 resistance level. Furthermore, a break above the 145.891 resistance level could give the bulls a run at 147.500.

Central Bank speeches and US durable goods orders require consideration.

Conversely, a drop below the 143.495 support level could give the bears a run at the August 5 low of 141.694 and the 141.032 support level.

The 14-day RSI at 32.19 suggests a USD/JPY drop below 144 before entering oversold territory.