USD/JPY Forecast: Japanese Manufacturing and US Consumer Inflation Expectations in Focus

Highlights

• The USD/JPY gained 0.61% on Friday, ending the session at 144.964.
• On Friday, the US Jobs Report countered Bank of Japan pivot bets.
• BSI Large Manufacturing Conditions and US consumer inflation expectations are focal points on Monday.

USD/JPY Movements on Friday

The USD/JPY gained 0.61%. After a 2.18% tumble on Thursday, the USD/JPY ended the day at 144.964. The USD/JPY fell to a low of 142.493 before rising to a Friday high of 145.209.

Japanese Economy and the Bank of Japan in the Spotlight

On Monday, the Japanese economy will be in focus again. BSI Large Manufacturing numbers for Q4 will draw investor interest early in the session. Economists forecast the Index to climb by 1.1% in Q4 vs. a 5.4% jump in the previous quarter. Despite recent economic indicators reflecting weak demand, the report could influence bets on a Bank of Japan pivot from negative rates.

Later today, machine tool orders for November could garner more interest. The Japanese manufacturing sector accounts for less than 30% of the economy. However, the Bank of Japan would likely consider weak demand when discussing the timing of a pivot from negative rates.

Economists forecast machine tool orders to decline by 12.0% year-over-year vs. a 20.6% slump in October.

While the stats will influence the buyer appetite for the Yen, the Bank of Japan chatter would likely have more impact. Uncertainty lingers about a BoJ pivot from negative rates. Recent economic indicators suggest the need for more policy support. Comments supporting an exit from negative rates would drive demand for the Yen.

US Consumer Expectations in Focus

On Monday, US Consumer Expectations will garner investor interest. Expectations of a pickup in inflationary pressure would support bets on a higher for longer Fed rate path. Higher interest rates impact borrowing costs and disposable income. A downward trend in disposable income would affect consumer spending and dampen demand-driven inflation.

Economists forecast a pickup from 3.6% to 3.8% in November.

US dollar sensitivity to the report could be more than usual with the Fed in focus. On Tuesday, the US CPI Report could also influence the Fed’s interest rate and economic projections on Wednesday.

Short-term Forecast

Near-term USD/JPY trends will likely hinge on the US CPI Report and the Fed. Weaker-than-expected GDP numbers from Japan and uncertainty about a BoJ pivot are also considerations. A hawkish Fed and a less committed BoJ to pivoting from negative rates could drive buyer demand for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 145 handle would support a move toward the 146.649 resistance level.

Economic indicators from Japan, BoJ commentary, and US inflation numbers are likely focal points.

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

The 14-day RSI at 34.34 suggests a USD/JPY fall below the 144.713 support level before entering oversold territory.

4-Hourly Chart

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

A USD/JPY return to the 145 handle would give the bulls a run at the 146.649 resistance level.

However, a break below the 144.713 support level would bring the 142.177 support level into view.

The 14-period 4-hour RSI at 43.22 suggests a USD/JPY drop below the 144 handle before entering oversold territory.