USD/JPY Daily Forecast: Ueda’s Speech and Powell’s Outlook to Drive Market Action

On Friday, August 23, inflation figures from Japan put the Bank of Japan and the USD/JPY under the spotlight.

The Statistics Bureau of Japan reported that the annual inflation rate remained at 2.8% in July. However, the core inflation rate rose from 2.6% in June to 2.7% in July, which may fuel speculation about a Q4 2024 Bank of Japan rate hike.

In response to the inflation figures, the USD/JPY moved from 146.067 to 146.186. The market reaction was relatively muted as investors awaited Bank of Governor Kazuo Ueda’s speech in parliament.

Bank of Japan Governor Ueda in Focus

Later in the morning session, Bank of Japan Governor Ueda will address parliament. He will likely face tough questions following the Bank of Japan’s monetary policy decision that induced Yen carry trade unwind. His views on the Bank of Japan’s rate path will be crucial. Hints of a Q4 2024 rate hike could trigger another USD/JPY fall toward 140.

On July 31, the Bank of Japan raised interest rates to around 0.25% and reduced its Japanese Government Bond purchases. After the Rate Statement, Governor Ueda delivered a hawkish press conference, signaling a significant narrowing in the interest rate differential between the US and Japan. This led to a drop in USD/JPY to 141.684 and market disruption as investors unwound their carry trade positions.

On Wednesday, August 7, Bank of Japan Deputy Governor Uchida Shinichi stepped in to calm the markets, 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.”

Bank of Japan Rate Hikes Still on the Table

On Tuesday, the Bank of Japan reportedly released research papers discussing rising inflationary pressures and the possible need for a further rate hike.

The authors reportedly stated,

“Business price-setting behaviors are shifting amid intensified upward pressures on wages,” a paper about service prices noted. It’s important to investigate whether this phenomenon will spread further by comprehensive analysis.”

Expert Views on the Bank of Japan Rate Hike and Market Disruption

ARK Invest CEO and CIO Cathie Wood said,

“We’ve talked to our partner Nikko Asset Management in Japan about this carry trade and, as they point out, the BoJ is only at 25 basis points. So, they believe this was an overreaction and that of course, now, as we’re beginning to understand, the BoJ and the Fed are beginning to coordinate a little bit more.”

US Economic Calendar

Later in the session on Friday, Fed Chair Powell’s speech from the Jackson Hole Symposium will impact US dollar demand.

The markets expect Fed Chair Powell to greenlight a September Fed rate cut. However, uncertainty lingers about whether the Fed will cut rates by 25 or 50 basis points. Hints of a 50 basis point rate cut could push the USD/JPY down toward 140.

Investors should also consider any indications of rate cuts in November and December and his views on the US economy.

A 50-basis point rate cut in September, followed by two 25-basis point cuts in November and December, would significantly narrow the interest rate differential. Moreover, the threat of a hard US economic landing may also signal aggressive rate cuts in Q1 2025, possibly putting more selling pressure on the US dollar.

Expert Views on the US Labor Market

Arch Capital Global Chief Economist Parker Ross remarked on Thursday’s jobless claims data, stating,

“Flows (i.e. layoffs) have been relatively normal for most of 2024, but unemployed workers are taking longer to find a new job, which is reflected in the much higher level of continuing claims vs initial claims relative to recent non-COVID norms.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on BoJ Governor Ueda and Fed Chair Powell. A hawkish BoJ Governor and Fed Chair Powell’s support for multiple 2024 rate cuts could signal a USD/JPY drop toward 140.

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 trends.

A USD/JPY return to 147.500 may bring the 148.529 resistance level and trend line into play. Furthermore, a break above the trend line could give the bulls a run at 150.

Speeches by Bank of Japan Governor Ueda and Fed Chair Powell require consideration.

Conversely, a drop below the 145.891 support level could signal a fall to 144. A fall through 144 may bring the 143.495 support level into play.

The 14-day RSI at 36.88 indicates a USD/JPY all through 144 before entering oversold territory.