USD/JPY Forecast: US Labor Market in Focus Post FOMC Meeting Minutes

Highlights

• The USD/JPY rallied 0.92% on Wednesday, ending the session at 143.286.
• On Thursday, the focus will be on the Bank of Japan and Japanese Manufacturing PMI numbers.
• However, US labor market data also warrants consideration.

USD/JPY Movements on Wednesday

The USD/JPY rallied 0.92% on Wednesday. After a 0.71% gain on Tuesday, the USD/JPY ended the session at 143.286. The USD/JPY fell to a low of 141.856 before rising to a Wednesday high of 143.732.

Japanese Economy: Manufacturing PMI in the Spotlight

On Thursday, the Japanese Manufacturing PMI will draw investor interest. Economic indicators from Japan and uncertainty about the global economic outlook enabled the Bank of Japan to stand firm on monetary policy. The markets expect the BoJ to consider a pivot from negative rates in April. However, weaker-than-expected economic indicators could continue to push back a BoJ pivot date.

According to the preliminary survey, the Jibun Bank Manufacturing PMI fell from 48.3 to 47.7. The Japanese manufacturing sector contributes less than 30% to the Japanese economy. However, weakness across the manufacturing sector could draw the attention of BoJ Board members.

Beyond the numbers, Bank of Japan commentary needs consideration. Comments relating to a move away from ultra-loose policy would move the dial.

US Labor Market Stats and the Services Sector

The ADP employment report, weekly jobless claims, and Services PMIs will garner investor interest on Thursday. After the FOMC meeting minutes and hawkish Fed chatter, upbeat numbers would further reduce bets on a Q1 Fed rate cut.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income could fuel consumer spending. In turn, this could lead to demand-driven inflationary pressures. In response, the Fed could delay rate cuts to curb spending. A more hawkish rate path would dampen demand-driven inflation.

Economists expect the ADP to report a 115k increase in employment in December. Jobless claims forecasts are also bullish. Economists predict initial jobless claims to fall from 218k to 215k in the week ending December 30.

However, investors must also consider service sector data. The services sector accounts for over 70% of the US economy. Revisions to the preliminary S&P Global Services PMI warrants investor attention. According to the preliminary survey, the Services PMI increased from 50.8 to 51.3. An upward revision would support a less dovish Fed rate path.

Beyond the numbers, FOMC member commentary also needs monitoring. Hawkish comments would align with the Fed minutes and drive buyer demand for the US dollar.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on US service sector data and the US Jobs Report. Better-than-expected US data could reverse bets on a Q1 2024 Fed rate cut. Weak stats from Japan may force the Bank of Japan to delay a pivot from negative rates. The net effect would be an increase in appetite for the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 200-day EMA would support a move to the 144.713 resistance level and the 50-day EMA.

On Thursday, the focus will be on Japanese manufacturing sector stats, US data, and central bank commentary.

However, a drop below the 142.177 support level would bring the 139.359 support level into view.

The 14-day RSI at 44.62 suggests a USD/JPY fall through the 141 handle before entering oversold territory.

4-Hourly Chart

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

A USD/JPY breakout from the 143.500 handle would support a move to the 144.713 resistance level and the 200-day EMA. Selling pressure could intensify at 144.800. The 200-day EMA is confluent with the 144.713 resistance level.

However, a fall through the 142.500 handle would bring the 50-day EMA and the 142.177 support level into play.

The 14-period 4-hour RSI at 60.52 indicates a USD/JPY move to the 144.713 resistance level and 200-day EMA before entering overbought territory.