Japanese Yen Forecast: USD/JPY Rises as Weak Spending Tempers BoJ Hike Bets

Japanese household spending figures signaled cooling private consumption, lifting USD/JPY early in the Asian session on Friday, November 7. Household spending has been a topic of discussion, given recent USD/JPY strength, triggering yen intervention warnings amid concerns about import prices.

A weaker yen could lift import prices, affecting inflation and consumer spending. Weaker spending could affect the economy, given that private consumption accounts for roughly 55% of Japan’s GDP.

Today’s data followed Japanese wage growth data for September, which signaled rising full-time wage growth, but softer part-time wages. Wage growth and consumer spending are two key considerations for the Bank of Japan’s monetary policy outlook.

Household Spending Spotlights the Bank of Japan

Japanese household spending increased 1.8% year-over-year in September, down from 2.3% in August. Weaker consumer spending could cool demand-driven inflation, supporting a less hawkish BoJ rate path. Fading bets on a December BoJ rate hike could ease demand for the yen.

Notably, the mixed wage data and softer rise in household spending tempered bets on a BoJ rate hike. USD/JPY rose from 152.865 to 152.973 after the release of the data, reflecting a less hawkish BoJ policy stance.

Why do Traders Need to Track Wage Growth and Household Spending?

Average cash earnings (nominal pay) rose 1.9% YoY in September, up from 1.3% in August, while real wages fell 1.4%.

Meanwhile, Japan’s so-called ‘core-core’ inflation rate eased from 3.3% in August to 3.0% in September, meaning wages are trailing price increases, affecting household purchasing power. Purchasing power could erode further if markets temper BoJ rate hike bets and the yen weakens, further reducing household purchasing power.

Weakening purchasing power could ease inflationary pressures, affect the economy, and weigh on the yen, a vicious cycle for households, the BoJ, and the Japanese government, which is eyeing yen movements.

Japanese Prime Minister Sanae Takaichi recently commented on wages and inflation, stating that price stability, coupled with wage gains, had yet to be achieved.

While recent Japanese data could support a more dovish BoJ rate path, intervention threats would cap USD/JPY gains.

Consumer Sentiment and Capitol Hill Votes

While traders assess the latest Japanese data and the BoJ’s policy outlook, the US government shutdown could leave markets without crucial labor market data later on Friday.

The shutdown dragged into day 38 on Friday, November 7, the longest in history. The US Senate impasse will leave University of Michigan – Surveys of Consumers and Fed speakers to influence USD/JPY trends.

Waning consumer confidence and elevated inflation expectations could signal a pullback in consumer spending. Softer spending trends could dampen inflation and the US economy, given that private consumption accounts for roughly 65% of GDP.

A cooling inflation outlook and potential loss of economic momentum may raise expectations of a December Fed rate cut. A more dovish Fed rate path could push USD/JPY toward the 50-day Exponential Moving Average (EMA).

On the other hand, a pickup in consumer sentiment and easing inflation expectations could signal an upswing in consumer spending, supporting a less hawkish Fed policy stance. Fading bets on a December Fed rate cut could send USD/JPY toward the November 4 high of 154.483.

Fed Speakers in Focus as Labor Market Data Flashes Red

Beyond the data, FOMC members’ speeches will require consideration, given growing concerns about the US labor market. According to Challenger, Gray, & Christmas data, job cuts soared from 54.064k in September to 153.074k in October, raising bets on a December Fed rate cut.

According to the CME FedWatch Tool, the chances of a December policy adjustment rose from 62.0% to 70.6% on Thursday, November 6.

Growing Fed support for a rate cut in December could weigh on the US dollar, supporting a USD/JPY fall toward 151 and the 50-day EMA. Conversely, continued concerns about elevated inflation, despite a cooling labor market, may send the pair toward 154.483.

Given the US labor market data and potential impact on wage growth and spending, the near-term outlook looks bearish for USD/JPY.

USD/JPY Scenarios: Diverging Monetary Policies

• Bearish USD/JPY Scenario: Hawkish BoJ rhetoric, intervention threats, weak US data, and dovish Fed cues could push USD/JPY toward 151.
• Bullish USD/JPY Scenario: Dovish BoJ commentary, strong US data, and hawkish Fed policy signals could send USD/JPY toward 154.483.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Key Market Drivers to Watch Today:

• Bank of Japan commentary.
• Intervention warnings.
• University of Michigan – Surveys of Consumers.
• Developments on Capitol Hill.
• Fed speakers.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.