USD/JPY Forecast: The Bank of Japan, US Consumer Confidence, and the Fed in Focus

Highlights

• The USD/JPY fell by 0.48% on Monday, ending the session at 148.675.
• Market bets on a Bank of Japan pivot from negative rates continued to support a move toward 145.
• On Tuesday, US consumer confidence and Fed speakers could influence the USD/JPY trajectory.

USD/JPY Movements on Monday

The USD/JPY fell by 0.48% on Monday. Following a 0.09% loss on Friday, the USD/JPY ended the day at 148.675. The USD/JPY rose to a high of 149.674 before falling to a low of 148.542.

The Calm Before the Storm for the Japanese Yen

On Monday, the Japanese Yen continued moving toward 145 against the US dollar. Intervention talk has stopped, leaving investors to consider the timing of a Bank of Japan exit from negative rates.

After hotter-than-expected headline national inflation numbers from Japan, investors await BoJ forward guidance to better gauge the timing of a BoJ pivot. On Wednesday, BoJ Board Member Adachi is on the calendar to speak. Support for a Q1 2024 exit from negative rates could push the USD/JPY toward 145.

Notably, the BoJ may have little breathing room on an uncertain economic outlook, with inflation showing no signs of returning to target.

On Tuesday, market sentiment toward the BoJ and negative rates will remain the focal point. There are no economic indicators from Japan to influence the buyer appetite for the Yen.

US Consumer Confidence and Fed Speakers to Move the Dial

On Tuesday, US consumer confidence and house price figures are in focus. Barring an unexpected slide in US house prices, consumer confidence will likely garner more investor interest.

A larger-than-expected fall in confidence could affect consumer spending and dampen demand-driven inflation. A softer demand-driven inflation outlook would ease the need for a hawkish Fed rate path. However, a weaker demand outlook could also fuel fears of a hard landing. US private sector consumption contributes over 60% to the US economy.

With consumer confidence in focus, investors must also consider Fed commentary. FOMC voting members Christopher Waller, Austan Goolsbee, Michelle Bowman, and Michael Barr are on the calendar to speak. References to inflation and interest rates will warrant investor attention.

Short-term Forecast

Market bets on a Bank of Japan pivot from negative rates leave monetary policy divergence tilted toward the Yen. However, US inflation numbers and Fed Chair Powell must support an H1 2024 Fed rate cut for the USD/JPY to continue moving toward 145.

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 break above the 50-day EMA would support a move to the 150.201 resistance level.

Bank of Japan chatter and the US economic calendar are focal points.

A fall below the 148.405 support level would bring the 146.649 support level and the trend line into play.

The 14-day RSI at 41.84 suggests a USD/JPY fall below the 148 handle 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 return to 149 would support a move to the 50-day and 200-day EMAs. A break above the EMAs would bring the 150.201 resistance level into play.

However, a drop below the 148.405 support level would support a fall toward the 146.649 support level.

The 14-period 4-hour RSI at 36.89 indicates a USD/JPY drop below the 148 handle before entering oversold territory.