USD/JPY Forecast: Sub-147 in View Despite 2.1% Slump in Household Spending

USD/JPY Movement on Thursday

The USD/JPY slid by 0.87% on Thursday. Following a 0.46% decline on Wednesday, the USD/JPY ended the session at 148.042. The USD/JPY rose to a high of 149.367 before falling to a Thursday session low of 147.579.

Household Spending Dives Despite Wage Growth

On Friday, household spending figures from Japan drew investor interest. Household spending slid by 2.1% month-on-month in January after falling by 0.9% in December. Economists forecast household spending to increase by 0.4%.

As a result, household spending was down 6.3% year-on-year versus a 2.5% year-on-year decline in December.

Significantly, household spending slumped despite a jump in average cash earnings in January. Average cash earnings rose by 2% year-over-year after increasing by 1% in December. The wage growth figures raised bets on an April Bank of Japan pivot from negative rates. However, the household spending numbers signal a disconnect between wage growth and consumer spending.

The Bank of Japan may need more data before signaling an exit from negative rates. Wage growth needs to fuel consumer spending and demand-driven inflation for a pivot.

Considering the mixed data, investors must monitor Bank of Japan chatter. Reaction to the wage growth and household spending figures would move the dial.

US Economic Calendar: The US Jobs Report

On Friday, the US Jobs Report will warrant investor attention. Fed Chair Powell and labor market data supported bets on an H1 2024 Fed rate cut. A weaker-than-expected Jobs Report could cement a June Fed rate cut, leaving investors to speculate about a 25 or 50-basis point cut.

Beyond the headline nonfarm payrolls, investors must consider wage growth and the unemployment rate. Softer-than-expected wage growth and a higher unemployment rate could impact consumer confidence and spending. Downward trends in consumer spending may dampen demand-driven inflation and enable the Fed to cut interest rates.

Economists forecast a 200k increase in nonfarm payrolls and a steady unemployment rate of 3.7%. However, economists expect average hourly earnings to increase by 4.4% year-on-year in February, down from 4.5% in January.

Beyond the stats, FOMC member chatter requires monitoring. Reactions to the US Jobs Report and views on the timeline for interest rate cuts need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US Jobs Report and Bank of Japan chatter. Support for a BoJ pivot from negative rates and weaker US labor market conditions could tilt monetary policy divergence toward the Yen. The BoJ is considering an exit from negative rates while the markets bet on a June Fed rate cut.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 148.405 resistance level and 50-day EMA would support a move toward the 150.201 resistance level.

BoJ chatter, the US Jobs Report, and Fed commentary need consideration.

However, a drop below the 147.500 handle could give the bears a run at the 146.649 support level.

The 14-day RSI at 39.07 indicates a USD/JPY fall through the 147 handle before entering oversold territory.

4-Hourly Chart

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

A USD/JPY breakout from the 148.405 resistance level could support a move toward the 200-day EMA.

However, a break below the 147.500 handle would bring the 146.649 support level into play.

The 14-period 4-hour RSI at 22.01 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 147.500 handle.