USD/JPY Forecast: Yen Volatility as BoJ and US Jobless Claims Influence Sentiment

Bank of Japan’s Summary of Opinions

The Bank of Japan’s Summary of Opinions spotlighted the USD/JPY on Thursday, August 8.

Key points from the Summary of Opinions included,

• The Japanese economy will likely grow above its potential growth rate, driven by a virtuous cycle of income to spending.
• BoJ expects a gradual increase in underlying inflation (CPI), with an improved likelihood of achieving the inflation target.
• Upside pressure on prices will likely persist because of tight labor market conditions, working hour limits, import price trends, and Yen depreciation.
• The current economic situation seems favorable for the Bank to raise the significantly low policy interest rate to some degree.
• The nominal interest rate will remain highly accommodative at 0.25%.
• Future policy needs to be conducted carefully.
• Assuming the price stability target is achieved in the second half of fiscal 2025, the Bank should raise the policy interest rate to the neutral rate, estimated at about 1%, toward that time.

Bank of Japan Assurances Mute Summary of Opinions

On Wednesday, August 7, Bank of Japan Deputy Governor Uchida Shinichi reassured the markets regarding rate hikes, saying,

“I believe that the Bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile.”

On Wednesday, the USD/JPY gained 1.65%, closing at 146.666. However, the USD/JPY was down 0.58% on Thursday, August 8, with the Summary of Opinions a reminder of diverging BoJ-Fed monetary policy trajectories.

Expert Commentary

The Kobeissi Letter posted,

“The S&P 500 is now down 115 points from its high of the day and down over 0.5% on the day. Even as the Bank of Japan has backtracked on their more hawkish policy, markets are struggling to hold a rally. Investor confidence appears to be deteriorating.”

Natixis Asia Pacific Chief Economist Alicia Garcia summarized the outlook for the markets, saying,

“The reality is that, beyond the risk of a US recession, there is also a problem in Japan, namely how to exit an ultra-lax monetary policy after so long. Still, a huge amount of short positions in Yen will be unwinding putting appreciation on the Yen, adding to the volatility. Fasten your seatbelts!”

Market uncertainty could fuel a flight to safety and raise concerns of another Yen carry trade unwind-fueled market meltdown. The Summary of Opinions and expectations of multiple Fed rate cuts signal a marked narrowing in interest rate differentials, favoring the Yen.

US Economic Calendar

Later in the session on Thursday, US jobless claims could be crucial for sentiment toward the Fed’s rate path.

Economists forecast continuing jobless claims will fall from 1,877k in the week ending July 20 to 1,870k in the week ending July 27.

An unexpected increase could retrigger US recession fears. A weaker labor market could affect wage growth and reduce disposable income. Falling disposable income may curb consumer spending, impacting the US economy. Private consumption contributes over 60% to the economy.

The Fed may respond with more aggressive rate cuts to bolster the US economy. However, more aggressive rate cuts could sharply narrow interest rate differentials between the US and Japan and trigger another Yen carry trade unwind.

Bets on a more dovish Fed rate path could support a USD/JPY drop toward 140.

Expert Commentary

Arch Capital Chief Economist Parker Ross commented on the labor market, saying,

“The 1-month private sector job diffusion index, which measures the share of industries recording an expansion of payrolls during the most recent month, dipped below 50 for the first time since the pandemic in July to 49.6.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on US jobless claims and central bank commentary. An unexpected increase in continuing jobless claims and dovish Fed chatter could support a USD/JPY fall toward 140.

Investors should remain alert. Monitor real-time data, central bank monetary policy decisions, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, confirming the bearish price trends.

A USD/JPY return to 147.500 would support a move toward the 148.529 resistance level and the trend line. A breakout from the trend line could give the bulls a run at 150. However, selling pressure could intensify at the trend line. The trend line is confluent with the 148.529 resistance level.

Central bank commentary and US jobless claims need consideration on Thursday.

Conversely, a drop below the 145.891 support level could signal a fall toward the 143.495 support level. A fall through the 143.495 support level could bring the 141.032 support level into play.

The 14-day RSI at 25.98 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.