USD/JPY Forecast: Rising Despite Economic Cracks – Is the Japanese Yen’s Defense Near?

Highlights

• The USD/JPY gained 0.35% on Monday, ending the session at 148.881.
• USD/JPY targets 150 amid BoJ inflation concerns and economic frailties.
• USD/JPY maneuvers economic landscapes; a move to 150 is on the table despite Japanese government threats of intervention.

Monday Overview of USD/JPY Movements

On Monday, the USD/JPY rose by 0.35%. Following a 0.54% gain on Friday, the USD/JPY ended the day at 148.881. The USD/JPY fell to a low of 148.222 before rising to a Monday high of 148.963.

Bank of Japan Consumer Price Report in Focus

The Bank of Japan inflation report will garner investor interest on Tuesday. Economists forecast the BoJ Core annual inflation rate to soften from 3.3% to 3.2%. The Bank of Japan’s inflation target is 2%.

However, the latest round of Bank of Japan comments suggested an unlikely shift to policy until the 2% target is attainable.

On Monday, Bank of Japan Governor Ueda and Deputy Governor Uchida highlighted economic frailties and uncertainties about wage growth and elevated inflation. The dovish comments sent the USD/JPY toward 150.

However, the lingering threat of a Japanese government intervention to bolster the Yen continues to leave the USD/JPY short of 150.

US Consumer Confidence to Dictate Sentiment Toward US Consumption

Small cracks are beginning to show in the US economy. The Chicago Fed National Activity Index unexpectedly fell from +0.07 to -14.00 in August. After the disappointing US services PMI, fears of missing a soft landing could test dollar appetite.

Later today, the US CB Consumer Confidence Index will indicate the near-term outlook for US consumption. US private consumption contributes more than 65% to US GDP. A slump in consumer confidence would signal a curb in spending and softer demand-inflationary pressures. However, a weak demand outlook would also trigger fears of a hard landing.

Economists forecast the CB Consumer Confidence Index to slip from 106.1 to 105.9 in September. An Index decline to below 105 would likely draw a market reaction.

Beyond the numbers, FOMC member commentary will also influence. Hawkish comments would support the USD/JPY at current levels.

Short-term Forecast

The US dollar remains in the driving seat despite early cracks in the US economy. Yield differentials continue to support a USD/JPY move to 150. However, a round of weak US economic indicators could change the USD/JPY to 150 narrative. A less hawkish Fed would ease policy divergence expectations.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals. Avoiding a fall through the 148.405 support level would bring the 150.293 resistance level into play. However, US consumer confidence must beat forecasts to support the hawkish Fed interest rate path and a USD/JPY breakout.

A break below the 148.405 support level would give the bears a run at sub-147. A slump in US consumer confidence would deliver a sharp pullback.

The 63.94 14-Daily RSI indicates a USD/JPY move to 149.50 before entering overbought territory.

4-Hourly Chart

The USD/JPY hovers above the 50-day and 200-day EMAs, reaffirming the bullish price signals. A USD/JPY return to 149 would support a move to the 150.293 resistance level.

However, a break below the 148.405 support level would give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring sub-147 into play.

The 66.19 14-4 Hourly RSI reading supports a USD/JPY return to 149 before entering overbought territory.