USD/JPY Forecast: Yen Volatility with Japan’s GDP and US Inflation in Focus

USD/JPY Steadies after the Yen Carry Trade Unwind

The USD/JPY gained 0.09% to close at 146.605 in the week ending August 9. It had tumbled to a Monday low of 141.684 before climbing to a Wednesday high of 147.901.

Bank of Japan’s Stance

Bank of Japan Deputy Governor Uchida Shinichi held a press conference assuring the markets of no near-term rate hikes because of current market conditions. The Deputy Governor held the press conference following the Yen carry trade unwind.

Japan Producer Prices and GDP

On Tuesday, August 13, producer prices will impact the USD/JPY. Economists forecast producer prices to increase by 3.0% year-on-year in July, up from 2.9% in June. As a leading indicator of consumer price inflation, higher producer prices could raise investor bets on a Q4 2024 Bank of Japan rate hike.

On Thursday, August 15, preliminary GDP numbers for Q2 2024 will draw investor interest. Economists expect Japan’s economy to expand by 0.5% in Q2 2024 after a 0.5% contraction in Q1 2024.

Higher-than-expected GDP and private consumption numbers could boost expectations of a Q4 2024 BoJ rate hike. Upward trends in private consumption could fuel demand-driven inflation.

Other Key Indicators

Other stats include machine tool orders (Tues), finalized industrial production (Thurs), and Tertiary Industry Index (Fri) numbers. However, the stats will likely play second fiddle to the inflation and GDP numbers.

Expert Views on the Yen

Bloomberg Asia Pacific Chief Markets Editor David Ingles shared a chart on recent Yen volatility, stating,

“What a week in Japan. To underscore how wild the market’s behaved recently, the only other two times stock swings were comparable was during the global financial crisis (green) and during the early 90s bubble burst (red).”

Rising producer prices and an improving macroeconomic backdrop would boost expectations of a Q4 2024 BoJ rate hike. Significantly, a narrowing in interest rate differentials between the US and Japan could push the USD/JPY toward 140.

Comments from the Bank of Japan could be pivotal after last week’s assurances of the status quo. Hawkish chatter could trigger fears of another Yen carry trade unwind.

Overview of the US Dollar

Meanwhile, it will be a crucial week for the US dollar amid expectations of multiple 2024 Fed rate cuts.

US Producer Prices in Focus

On Tuesday, August 13, economists expect producer prices to increase by 0.1% in July, following a rise of 0.2% in June.

Higher-than-expected numbers could signal a pickup in consumer price inflation. Rising consumer prices could reduce investor bets on multiple 2024 Fed rate cuts.

Will the US CPI Report Cement Three 2024 Fed Rate Cuts?

On Wednesday, August 14, the US CPI Report will be a crucial data release.

Economists forecast the annual core inflation rate to fall from 3.3% in June to 3.2% in July.

A larger-than-expected fall in core inflation could cement investor bets on September, November, and December Fed rate cuts.

Jobless Claims Under the Spotlight

On Thursday, August 15, jobless claims data will influence sentiment toward the US economy and the Fed rate path.

Economists forecast initial jobless claims to fall from 233k in the week ending August 3 to 232k in the week ending August 10.

A larger-than-expected decline could increase the likelihood of the US avoiding a recession. A tighter labor market could support wage growth and disposable income, fueling consumer spending and demand-driven inflation. A higher inflation outlook could suggest a less dovish Fed rate path.

We expect heightened US dollar sensitivity to the claims data after the market reactions to recent labor market data.

US Retail Sales and the US Economy

On Thursday, US retail sales will also need consideration. Economists expect retail sales to increase by 0.3% in July after stalling in June.

A larger-than-expected rise in retail sales could raise the chances of the US avoiding a US economic recession. Private consumption contributes over 60% to the US economy. Moreover, a marked pickup in retail sales could fuel demand-driven inflation, supporting a less dovish Fed rate path.

Michigan Consumer Sentiment and Consumption

On Friday, August 16, US consumer confidence will spotlight the US economy. Economists expect the Michigan Consumer Sentiment Index to increase from 66.4 in July to 66.7 in August.

A larger-than-expected increase could also support bets on the US avoiding a recession. Rising consumer confidence could boost spending and the US economy. However, investors should also consider subcomponents, including inflation expectations.

Consumers could delay purchases if they think inflation will soften in the near term, impacting consumer spending and the US economy. The Fed could signal a more dovish Fed rate path, lowering borrowing costs and increasing disposable income. Higher disposable income trends could boost spending.

Expert Views on the US Economy and the Fed Rate Path

FOMC member Michelle Bowman commented on inflation, the labor market, and the Fed rate path, stating,

“I am not confident that inflation will decline in the same way as in the second half of last year. Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment.”

While leaving the door open to a Fed rate cut, Bowman also said,

“But we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point.”

Softer US inflation and labor market data could bolster the case for multiple 2024 Fed rate cuts. A more dovish Fed rate path may also influence interest rate differentials and support a USD/JPY drop toward 140.

Short-term Forecast: Bearish

Near-term USD/JPY trends hinge on inflation numbers from Japan and the US, and US labor market data. Softer US inflation and labor market data could fuel bets on multiple 2024 Fed rate cuts and push the USD/JPY below 145. Moreover, higher producer prices and private consumption numbers from Japan could raise bets on a Q4 2024 BoJ rate hike and signal a USD/JPY drop toward 140.

Investors should remain alert in another crucial week for the USD/JPY pairing. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 148.529 resistance level and trend line could give the bulls a run at 150. Furthermore, a return to 150 could signal a move toward the 151.684 resistance level and the 200-day EMA. Selling pressure could intensify at the 151.685 resistance level. The 200-day EMA is confluent with the resistance level.

Economic data from Japan and the US and central bank chatter require consideration.

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

The 14-day RSI at 28.51 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.