USD/JPY Forecast: Inflation Numbers from Japan and the US to Dictate USD/JPY Trends

Highlights

• The USD/JPY gained 0.11% on Thursday, ending the session at 150.363.
• Intervention threats left the USD/JPY short of 151 despite a stellar third quarter for the US economy.
• Inflation will be the topic of the Friday session, with inflation numbers from Japan and the US in focus.

Thursday Overview of USD/JPY Movements

The USD/JPY gained 0.11% on Thursday. Following a 0.19% rise on Wednesday, the USD/JPY ended the session at 150.363. The USD/JPY fell to a low of 149.816 before climbing to a high of 150.777.

Tokyo Inflation, the Bank of Japan, and Interventions

On Friday, inflation figures for October will put the Bank of Japan in the spotlight. Economists forecast the Tokyo annual core inflation rate to hold steady at 2.5%. Sticky inflation would raise expectations of a near-term shift in the Bank of Japan’s monetary policy stance.

In recent speeches, the Bank of Japan reiterated the need for wage growth to fuel demand-driven inflation. Concerns about lackluster wage growth and inflation falling below target (2%) have forced the BoJ to leave interest rates in negative territory.

Sticky inflation and higher inflation expectations have raised concerns about negative interest rates. The Bank of Japan monetary policy meeting will be on October 30 – 31. The BoJ will likely consider the inflation numbers at the policy meeting.

Beyond the economic calendar, intervention threats to bolster the Yen also need consideration. A USD/JPY move toward 151 could test the buyer appetite for the US dollar.

US Inflation in the Spotlight

On Friday, US personal income, inflation, and personal spending will be in focus. After the hotter-than-expected US GDP report, the stats could materially influence Fed rate hike expectations.

Economists forecast the Core PCE Price Index to increase by 3.7% in September vs. 3.9% in August. Hotter-than-expected numbers could raise bets on a December Fed rate hike. However, personal income and spending must counter the US GDP report. The US GDP report highlighted softer inflation and a downward trend in disposable income.

Higher interest rates impact borrowing costs and disposable income, forcing consumers to curb spending. A downward trend in spending eases demand-driven inflationary pressure.

Other stats include finalized Michigan Consumer Sentiment and Expectations figures. Upward revisions may signal a positive consumption environment.

Short-term Forecast

Inflation figures from Japan and the US will dictate near-term trends for the USD/JPY. Sticky Japanese inflation figures may fuel expectations of a BoJ exit from negative interest rates. Yen sensitivity to any BoJ reaction to the inflation numbers will likely intensify.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY move through the Thursday high of 150.777 would support a move to the 151.889 resistance level.

USD/JPY movement will hinge on the inflation figures from Japan and the US.

A break below the 150.201 resistance level would bring the 148.405 support level and 50-day EMA into play. Softer-than-expected US inflation numbers and weaker personal spending would impact demand for the US dollar.

The 14-day RSI at 64.57 suggests a USD/JPY return to 151 before entering overbought territory.

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, reaffirming bullish price signals. A USD/JPY return to 151 would give the bulls a run at the 151.889 resistance level.

However, a break below the 150.201 support level would support a fall through the 50-day EMA to target 149.500.

The 64.56 14-4 Hourly RSI suggests a USD/JPY move to 151 before entering overbought territory.