USD/JPY Forecasts: Japanese Government’s Intervention Threats Impact the Pair

Highlights

• The USD/JPY declined by 0.47% on Wednesday, ending the session at 150.950.
• On Thursday, any Japanese government warnings of intervention would influence the USD/JPY trend.
• However, US labor market figures will influence Fed rate hike bets and the demand for the US dollar.

Wednesday Overview of USD/JPY Movements

The USD/JPY declined by 0.47% on Wednesday. Following the 1.75% rally on Tuesday, the USD/JPY ended the session at 150.950. The USD/JPY rose to a high of 151.685 before falling to a low of 150.661.

Is 151 the New Cap for the USD/JPY?

On Wednesday, the USD/JPY gave up the 151 handle. However, the USD/JPY avoided a drop below 150 despite the Fed interest rate decision and easing bets on a December Fed rate hike.

While the markets are shifting to a less hawkish Fed rate path, the Bank of Japan looks cemented in ultra-loose policy. Upward revisions to inflation forecasts failed to instigate a more hawkish policy outlook.

A resilient US economy and the chances of a Fed rate hike, albeit less likely, leave monetary policy divergence tilted toward the US dollar.

Intervention threats remain the safety net for the Japanese Yen. The markets will form a new cap for the USD/JPY, with 151 likely the line in the sand. Warnings of an intervention from the Japanese government to bolster the Yen could bring sub-150 into play.

There are no economic indicators from Japan for investors to consider on Thursday.

US Labor Market and Inflation Indicators in Focus

On Thursday, US initial jobless claims, unit labor costs, and nonfarm productivity figures warrant investor attention. Fed Chair Powell put the US labor market in the spotlight on Wednesday, noting the need for softer labor market conditions. A resilient US labor market could fuel bets on a December Fed rate hike.

Tighter labor market conditions support wage growth, fueling consumption and demand-driven inflation. Higher interest rates increase borrowing costs, reducing disposable income and consumption.

Economists forecast initial jobless claims to hold steady at 210k in the week ending October 28. However, a less marked increase in unit labor costs could ease inflationary pressures. Economists forecast unit labor costs to increase by 0.7% in Q3 (Q2: 2.2%). Firms pass increased labor costs onto consumers, fueling inflationary pressures.

Other stats include factory orders, which will likely play second fiddle to the labor market stats.

Short-term Forecast

Japanese Government intervention warnings and US labor market data will influence near-term trends for the USD/JPY. Better-than-expected US labor market numbers could keep monetary policy divergence tilted toward the US dollar. However, an intervention would offer brief relief for the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY move through the 151.889 resistance level would bring the trend line into play.

Intervention warnings and the US labor market will influence the Thursday session.

A fall through the 150.201 support level in USD/JPY would give the bears a run at the 148.405 support level and the 50-day EMA. Buying appetite could intensify at 148.400. The 50-day EMA is confluent with the 148.405 support level.

The 14-day RSI at 60.34 suggests a USD/JPY move through the 151.889 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY move through the 151.889 resistance level would bring the trend line into play.

However, a break below the 50-day EMA and the 150.201 support level would bring the 200-day EMA into view. Buying pressure will likely intensify at 150.200. The 50-day EMA is confluent with the 150.201 support level.

The 14-period 4-hourly RSI at 55.65 suggests a USD/JPY rise to the 151.889 resistance level before entering overbought territory.