USD/JPY Forecast: Bank of Japan’s Pivot Bets and US Housing Data Impact

Highlights

• The USD/JPY gained 0.21% on Friday, ending the session at 142.134.
• On Monday, Bank of Japan plans to pivot from negative rates will be a talking point before the Tuesday policy decision.
• Later in the Monday session, US housing sector data and Fed speakers need consideration.

USD/JPY Movements on Friday

The USD/JPY gained 0.21% on Friday. After a 0.73% loss on Thursday, the USD/JPY ended the day at 142.134. The USD/JPY rose to a high of 142.466 before falling to a low of 141.427.

Bank of Japan in the Spotlight

On Monday, the Bank of Japan will move into the spotlight. The Bank of Japan will deliver its final policy decision of the year on Tuesday. According to a Reuters Poll on Friday, all 28 economists responding to the poll expect the BoJ to leave interest rates unchanged at -0.10%.

However, 20% expect the BoJ to exit negative rates in January and 80% by the end of 2024.

Recent Bank of Japan forward guidance fueled uncertainty about the timing of a BoJ pivot from negative rates. A weak macroeconomic environment countered expectations of a pickup in wage growth, leaving the BoJ in a holding pattern.

US Housing Sector in Focus

On Monday, the US housing market will be in focus. Economists consider US housing sector data leading indicators. Improving housing market conditions would support the economy and consumer spending. Homebuyers purchase new items for homes. The housing sector contributes over 15% and private consumption over 60% to the US economy.

Economists forecast the NAHB Housing Market Index to increase from 34 to 36 in December.

An elevated interest and mortgage rate environment has impacted the housing market in 2023. However, a more dovish Fed rate path and hopes of a soft landing could be a boon for the housing sector.

Beyond the numbers, investors must monitor Fed commentary. Deviation from the dovish script could temper bets on a Q1 2024 Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on Bank of Japan forward guidance on interest rates. Assertive plans to pivot from negative rates in early 2024 would impact buyer appetite for the USD/JPY. Diverging policy goals would firmly tilt monetary policy in favor of the Yen.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 200-day EMA would support a move to the $144.713 resistance level.

On Monday, the focal points include the Bank of Japan, the Fed, and US housing sector data.

However, a fall through the $142.177 support level would bring the 139.359 support level into play.

The 14-day RSI at 30.84 indicates a USD/JPY drop below the 142.177 support level before entering oversold territory.

4-Hourly Chart

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

A USD/JPY return to the 143.500 handle would support a move to the 50-day EMA and the 144.713 resistance level.

However, a break below the 142.177 support level would bring the 139.359 support level into play.

The 14-period 4-hour RSI at 38.58 indicates a USD/JPY fall to the 141.500 handle before entering oversold territory.