USD/JPY Daily Forecast: Machinery Orders Spike as BoJ Rate Path Uncertainty Lingers

On Monday, August 19, machinery order numbers from Japan put the Japanese economy and USD/JPY in focus.

Machinery Orders Signal Improving Demand

Machinery orders increased by 2.1% in June after declining by 3.2% in May.

The better-than-expected numbers signaled an improving demand and macroeconomic environment. A rise in demand could boost business confidence, potentially leading to higher wages. Rising wages may fuel household spending and demand-driven inflation, possibly raising expectations of a Q4 2024 Bank of Japan rate hike.

Beyond the data, investors should monitor for comments from the BoJ as prospects of a Q4 BoJ rate hike diminish. Expectations of a Q4 2024 BoJ rate hike could pull USD/JPY toward 145.

Bank of Japan in Limbo

Economic data from Japan could influence investor sentiment toward the BoJ rate path. However, recent guidance suggests that the Bank of Japan will likely maintain current interest rates near term.

Bank of Japan Deputy Governor Uchida Shinichi discussed the BoJ’s policy stance after the Yen carry trade unwind, saying,

“I believe that the Bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile.”

Former BoJ Board Member Makoto Sakurai signaled a possible policy-holding pattern, saying,

“They won’t be able to hike again, at least for the rest of the year. It’s a toss-up whether they can do one hike by next March.”

US Economic Calendar

Later in the session on Monday, the US Leading Economic Index (LEI) may influence US dollar demand.

Economists forecast the LEI to fall by 0.3% in July after a 0.2% decline in June. A larger-than-expected fall may rekindle fears of a hard landing, supporting a USD/JPY move toward 145. The LEI offers insights into the US economic outlook, affecting sentiment toward the Fed rate path.

Beyond the economic data, FOMC member commentary also needs consideration. Voting member Christopher Waller will speak on Monday. In July, Waller stated that favorable CPI Reports could support a rate cut soon. A shift in stance regarding interest rate cuts could affect US dollar demand amid speculation about multiple 2024 Fed rate cuts.

Expert Views on the Fed Rate Path

Arch Capital Global Chief Economist Parker Ross remarked on the US CPI Report and the Fed rate path, stating,

“Core services inflation (0.31% m/m) – the sticky component the Fed has been worried about – bounced back in July from its weakest monthly reading since 2021.”

Short-term Forecast: Bearish

USD/JPY trends will depend on the US LEI, central bank forward guidance, and Services PMI numbers. Support for a Q4 2024 BoJ rate hike could pull the USD/JPY toward 145.  Weak stats from the US and a more dovish FOMC may also signal a drop toward 145.

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 well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY break above the 148.529 resistance level and the top trend line would support a return to 150. Furthermore, a breakout from 150 could give the bulls a run at the 200-day EMA and the 151.685 resistance level. Selling pressure may intensify at the 151.685 resistance level as the 200-day EMA is confluent with the resistance level.

Economic indicators from the US and central bank commentary require consideration on Monday.

Conversely, a fall through 147.500 could signal a fall toward the 145.891 support level. A break below the 145.891 support level may bring the 143.495 support level into play.

The 14-day RSI at 39.06 indicates a USD/JPY drop below 147 before entering oversold territory.