USD/JPY Daily Forecast: Market Awaits BoJ Rate Clues as USD/JPY Dips Below 144

USD/JPY Under Intensifying Pressure Amid Policy Shifts

On Wednesday, August 28, the USD/JPY will be under the spotlight after dropping below 144 on Tuesday, August 27.

The Leading Economic Index and the Japanese Economy

Japan’s Leading Economic Index (LEI) may influence Japanese Yen demand. According to the preliminary report, the LEI fell from 111.2 in May to 108.6 in June. The decline, attributed to higher bankruptcies, a fall in housing starts, and weaker demand for machinery and construction, reflected ongoing economic challenges.

The LEI gives investors an insight into the Japanese economy, possibly fueling speculation about a Q4 2024 Bank of Japan rate hike. An upward revision may raise expectations of a Q4 2024 BoJ rate hike and a possible USD/JPY fall toward 142.

Expert Views on Recent LEI Trends

The Conference Board Business Cycles Indicators Senior Manager, Justyna Zabinska-La Monica, commented on the prelim report, stating,

“Overall, the Index points to weakening growth ahead. Going forward the headwinds may be compounded by the impact of the recent interest rate hike and the stock market crash in early August (both not yet reflected in the data used for this report).”

Bank of Japan Monetary Policy Stance and the USD/JPY

BoJ Governor Kazuo Ueda recently hinted at possible rate hikes if inflation and the economy aligned with forecasts. The hawkish stance resensitized the USD/JPY to economic indicators from Japan, testing bets on a BoJ policy hold until Q1 2025.

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

IMF Chief Economist Pierre-Olivier Gourinchas, speaking at the Jackson Hole Symposium, supported a more hawkish BoJ rate path, 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: FOMC Members in Focus

Later in the Wednesday session, FOMC voting members Christopher Waller and Raphael Bostic are on the calendar to speak. Their views on the US labor market, the economic outlook, and the Fed rate path may influence US dollar demand.

While Fed Chair Powell recently supported a policy adjustment, uncertainty lingers on the size of a possible September rate Fed cut. Recent US economic indicators reduced bets on a 50-basis point September rate Fed cut. However, support for a 50-basis point Fed rate cut could send the USD/JPY toward 142.

Expert Views on the US Labor Market and the Economy

Arch Capital Global Chief Economist Parker Ross commented on current unemployment levels and a US recession, stating,

“I keep hearing: we can’t have a recession with unemployment below 5%… Quick history lesson: the unemployment rate was at or below the current level (4.3%) right before half of the recessions since the late 1940s. It was at or below 5% right before 8 of those 12 recessions.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on the upcoming inflation and labor market figures from Japan and the US. Higher inflation in Japan may raise bets on a BoJ rate hike, possibly sending the USD/JPY toward 142. Conversely, a spike in US jobless claims, a drop in personal spending, and softer inflation may fuel speculation about a 50-basis point September Fed rate, further impacting the USD/JPY.

Investors should remain vigilant. 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 sat well below the 50-day and 200-day EMAs, confirming the bearish price trend.

A USD/JPY move to 145 could give the bulls a run at the 145.891 resistance level. Furthermore, a breakout from the 145.891 resistance level may bring 147.500 into view.

The Leading Economic Index numbers from Japan and FOMC member commentary require consideration.

Conversely, a break below the 143.495 support level could signal a fall toward the August 5 low of 141.694 and the 141.032 support level.

The 14-day RSI at 31.70 indicates a USD/JPY fall through the 143.495 support level before entering oversold territory.