USD/JPY Forecast: Implications of Tankan Survey and Upcoming Fed Projections

Highlights

• The USD/JPY declined by 0.48% on Tuesday, ending the session at 145.450.
• On Wednesday, Tankan Survey-based numbers drew investor interest early in the session.
• However, the focus will be on the Fed interest rate decision, projections, and the press conference.

USD/JPY Movements on Tuesday

The USD/JPY declined by 0.48% on Tuesday. After a 0.81% rally on Monday, the USD/JPY ended the day at 145.450. The USD/JPY rose to a high of 146.175 before falling to a low of 144.724.

Tankan Survey-Based Numbers for Q4 in Focus

On Wednesday, Tankan survey-based numbers for Q4 garnered investor interest. The Tankan Large Manufacturers Index increased from 9 to 12 in Q4, the highest level since Q1 2022. Economists forecast an increase to 10. The quarterly survey covers over 1,000 manufacturers and provides a snapshot of current business conditions and outlook for the next quarter and 12 months.

The latest figures could test market bets on the Bank of Japan delaying a pivot from negative rates. Non-manufacturers also painted a rosier picture. The Tankan Large Non-Manufacturers Index climbed from 27 to 30 in Q4. Economists forecast the Index to remain steady at 27.

While the survey-based figures drew interest, BoJ commentary will remain the focal point. Uncertainty about the timing of a BoJ pivot from negative rates will expose the USD/JPY to BoJ forward guidance.

US Federal Reserve in the Spotlight

On Wednesday, US producer prices will draw investor interest early in the US session. An uptick in producer prices could signal an improving demand environment. Producers increase prices in a high-demand environment and pass prices on to consumers. A higher demand-driven inflation outlook could force the Fed to maintain a hawkish rate path for longer.

Economists forecast producer prices to increase by 1.0% year-over-year in November vs. 1.3% in October.

While the numbers need consideration, the market focus will be on the US Federal Reserve. The markets expect the Fed to leave interest rates at 5.5%, placing the focus on the projections and press conference. A hawkish revision to the Fed rate path could fuel demand for the US dollar. However, Fed Chair Powell’s press conference will also influence.

The Fed Chair previously dismissed discussions on rate cuts. A similar stance and a threat of higher interest rates would surprise the markets.

Short-term Forecast

Near-term USD/JPY trends hinge on the Fed and the Bank of Japan. A more hawkish Fed rate path and doubts about a BoJ pivot could drive demand for the USD/JPY. However, the reality of an eventual BoJ pivot from negative rates could cap the upside for the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day EMA while sitting above the 200-day, sending bearish near-term but bullish longer-term price signals.

A USD/JPY move through the 146.649 resistance level would give the bulls a run at the trend line.

The US Federal Reserve and the Bank of Japan are focal points mid-week.

However, a break below the 144.713 support level would bring the 200-day EMA into play.

The 14-day RSI at 38.18 suggests a USD/JPY fall through the 144.713 support level before entering oversold territory.

4-Hourly Chart

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

A USD/JPY move through the 50-day EMA and the 146.640 resistance level would bring the trend line into play.

However, a break below the 144.713 support level would give the bears a look at the 143 handle.

The 14-period 4-hour RSI at 45.65 indicates a USD/JPY fall through the 144.713 support level before entering oversold territory.