USD/JPY Price Forecast: Potential Drop to 145 Amid Fed Rate Cut Bets and BoJ Pressure

Highlights

• The USD/JPY fell by 0.71% on Friday, ending the session at 149.329.
• US economic indicators and Fed interest rate expectations left the USD/JPY at sub-150.
• On Monday, the Bank of Japan, the services sector, and the Fed will be in focus.

Friday Overview of USD/JPY Movements

The USD/JPY declined by 0.71% on Friday. Following a 0.37% loss on Thursday, the USD/JPY ended the session at 149.329. The USD/JPY rose to a high of 150.518 before falling to a low of 149.188.

The Bank of Japan and the Services Sector in Focus

On Monday, the Bank of Japan (BoJ) monetary policy meeting minutes for October will draw investor attention. Investors will glimpse internal discussions about negative rates, the Yield Curve Control policy (YCC), and inflation.

In October, the BoJ left interest rates unchanged but tweaked the YCC policy to an upper 1% band on 10-year yields in place of a hard cap.

Investors must also consider the finalized Jibun Bank Services PMI numbers for October. The services sector accounts for over 65% of the Japanese economy. A downward revision to preliminary numbers could force the BoJ to stay ultra-loose for longer. According to the flash survey, the Services PMI fell from 53.8 to 51.1.

Beyond the economic calendar, updates on the Middle East conflict also warrant consideration. An escalation would fuel demand for the safety of the Japanese Yen.

FOMC Chatter in Focus Amid Rising Bets on a Q1 2024 Fed Rate Cut

On Monday, FOMC voting member Lisa Cook is on the calendar to speak. The US Jobs Report and ISM Services PMI erased investor bets on a December Fed rate hike. Investors could respond to reactions to the recent stats. A hawkish outlook on interest rates will likely catch the markets by surprise.

According to the CME FedWatch Tool, the probability of a December Fed rate hike stood at 4.8% on Friday, November 3. One week earlier, the chances of a 25-basis point Fed rate hike stood at 19.2%.

Significantly, the probability of a March 2024 25-basis point rate cut rose from 13.7% to 25.5%. Rising bets on a Fed rate cut and pressure on the Bank of Japan to exit negative rates would impact the USD/JPY.

Short-term Forecast

The Fed pivot and pressure on the Bank of Japan to shift from an ultra-loose monetary policy stance suggest a USD/JPY drop to 145. However, the Middle East conflict remains a consideration. A de-escalation could ease demand for the safety of the Japanese Yen and slow the move toward 145.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY return to 150 would give the bulls a run at the 150.201 resistance level.

The Middle East conflict, services PMI, and central banks are focal points on Monday.

A drop below 149 would support a move to the 50-day EMA and the 148.405 support level. However, buying pressure could intensify at 148,420. The 50-day EMA is confluent with the 148.405 support level.

The 14-day RSI at 49.14 suggests a USD/JPY break below the 50-day EMA and 148.405 support level before entering oversold territory.

4-Hourly Chart

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

A USD/JPY hold above the 200-day EMA would support a move to the 50-day EMA and the 150.201 resistance level. Selling pressure will likely intensify at 150.140. The 50-day EMA is confluent with the 150.201 resistance level.

However, a drop below the 200-day EMA would bring the 148.405 support level into play.

The 14-period 4-hourly RSI at 35.87 indicates a USD/JPY fall below the 200-day EMA before entering oversold territory.