USD/JPY Daily Forecast: Tokyo Inflation Fuels Q4 BoJ Rate Hike Speculation

Tokyo Inflation Numbers Raise Expectations of a Q4 2024 BoJ Rate Hike

On Friday, August 30, inflation figures for Tokyo heightened expectations of a Q4 2024 BOJ rate hike, impacting the USD/JPY.

The core inflation rate rose from 2.2% in July to 2.4% in August, moving further from the BoJ’s 2% target. The USD/JPY responded to the inflation data, dropping from a morning high of 145.070 to a low of 144.757.

Retail Sales and Employment Data Present Mixed Signals

However, other economic indicators signaled a potentially softer inflation outlook. Retail sales growth dropped to 2.6% year-on-year in July, down from 3.8% in June. Downward trends in retail sales could dampen demand-driven inflation.

Meanwhile, the unemployment rate unexpectedly increased from 2.5% in June to 2.7% in July. Deteriorating labor market conditions may affect wage growth, possibly reducing disposable income. Downward disposable income trends may dampen consumer spending and demand-driven inflation.

Considering the August inflation figures, the BoJ may begin discussing a possible rate hike. However, the retail sales and unemployment numbers could influence the timing of a rate hike.

Other Stats

Industrial production increased by 2.8% in July after sliding by 4.2% in June. However, the production figures will likely play second fiddle to the inflation, retail sales, and unemployment data that may influence the BoJ rate path.

Bank of Japan and Rate Hikes

On Wednesday, Bank of Japan Deputy Governor Ryozo Himino supported further rate hikes if inflation and the economy aligned with forecasts. The Deputy Governor’s comments echoed Governor Kazuo Ueda’s remarks to Parliament.

US Economic Calendar

Turning to the US session, the Personal Income and Outlays Report, the Michigan Consumer Sentiment Survey, and the Chicago PMI could influence the Fed rate path.

Unless there is an unexpected slump in consumer sentiment, the Personal Income and Outlays Report may influence the Fed rate path.

US Personal Income and Outlays Report

Economists forecast the Core PCE Price Index will increase from 2.6% year-on-year in June to 2.7% in July.

Hotter-than-expected inflation could reduce investor bets on a 50-basis point September Fed rate cut. A more hawkish Fed rate path may curb consumer spending, dampening demand-driven inflation.

Higher-than-expected inflation could push the USD/JPY toward 147.500.

While inflation remains the focal point, personal income and spending figures may also impact bets on multiple 2024 Fed rate cuts.

A drop in personal income could lower disposable income, possibly curbing consumer spending. Downward trends in personal spending may signal a softer inflation outlook, potentially offsetting the effects of higher inflation on the Fed rate path.

Expert Views on the US Economy and Fed Rate Path

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on the overnight US data, stating,

“US Q2 GDP revised up to 3% annualised from 2.8% w stronger consumption. Core PCE revised to 2.8% annualised from 2.9% Initial jobless claims -2k, continuing +13k July pending home sales -5.5%mom Data leaning to 0.25% Sep Fed cut rather than 0.5%”

Short-term Forecast: Bearish

USD/JPY trends will hinge on the US Personal Income and Outlays Report. A fall in personal income/spending and softer inflation may refuel bets on a 50-basis point September Fed rate. A more dovish Fed rate path could drag the USD/JPY below 143.

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

A USD/JPY return to 145 would 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.

The US Personal Income and Outlays Report and central bank commentary require consideration.

Conversely, a drop below 144.500 could signal a fall toward the 143.495 support level. A fall through the 143.495 support level may bring into play the August 5 low of 141.694 and the 141.032 support level.

The 14-day RSI at 36.89 suggests a USD/JPY break below the 143.495 support level before entering oversold territory.