USD/JPY Forecast: The BoJ, the Fed, and US Consumer Inflation Expectations

Highlights

• The USD/JPY slipped by 0.02% on Friday, ending the session at 144.595.
• On Monday, Bank of Japan commentary would draw investor attention.
• US consumer inflation expectations and the Fed also need consideration.

USD/JPY Movements on Friday

The USD/JPY slipped by 0.02% on Friday. Partially reversing a 0.93% gain from Thursday, the USD/JPY ended the session at 144.595. The USD/JPY rose to a high of 145.977 before falling to a low of 143.805.

Bank of Japan Pivot Chatter

Recent economic indicators supported bets on a Bank of Japan pivot from negative rates. However, demand-driven inflation remains the focal point for the BoJ. On Tuesday, household spending and inflation figures for Tokyo could pressure the BoJ to begin considering a pivot.

Economists forecast household spending to increase by 0.2% in November. Significantly, economists expect the annual inflation rate to soften from 2.6% to 2.5%. A pickup in consumer spending could drive demand-driven inflation and force the BoJ to exit negative rates. Sticky inflation would support bets on a pivot.

However, there are no economic indicators from Japan to consider on Monday. The Japanese markets are closed for Respect the Aged Day. A lack of stats leaves BoJ commentary to influence the USD/JPY.

US Consumer Inflation Expectations and Fed Chatter

On Monday, US Consumer Inflation Expectations will garner investor interest. Higher inflation expectations over the next 12 months could reduce bets on a Q1 Fed rate cut. Higher inflation would force the Fed to keep interest rates at current levels for longer.

A more hawkish Fed rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

Economists forecast Consumer Inflation Expectations to soften from 3.4% to 3.3% in December. The US dollar could be more sensitive to the report as investors look ahead to the US CPI Report on Thursday.

Beyond the numbers, FOMC voting member Raphael Bostic is on the calendar to speak. References to the US Jobs Report and interest rates warrant investor attention.

Short-term Forecast

Near-term trends for the USD/JPY hinge on household spending and inflation numbers from Japan and the US. Softer US inflation numbers and sticky Tokyo inflation could tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 50-day EMA would support a move to the 146.649 resistance level.

Central bank commentary and US consumer inflation expectations are in focus.

However, a fall through the 144.713 support level would give the bears a run at the 200-day EMA.

The 14-day RSI at 53.16 suggests a USD/JPY move to the 146.649 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY held above the 50-day EMA and 200-day EMAs, sending bullish price signals.

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

However, a break below the 200-day EMA and the 144.713 support level would bring the 50-day EMA into play. Buying pressure could intensify at 144.800. The 200-day EMA is confluent with the 144.713 resistance level.

The 14-period 4-hour RSI at 66.27 suggests a USD/JPY return to the 146 handle before entering overbought territory.