Japanese Yen Weekly Forecast: USD/JPY Outlook Bearish as Tokyo Inflation, Retail Sales Loom

USD/JPY Slides on Fed Chair Powell Policy Pivot and BoJ Hike Bets

The USD/JPY is in for a big week after Fed Chair Powell hinted at rate cuts at the Jackson Hole Symposium. Meanwhile, sticky Japanese inflation supported a Q4 BoJ rate hike, signaling a narrowing interest rate differential in favor of the Yen.

In the week ahead, labor market data, retail sales, consumer confidence, and Tokyo inflation numbers will give the BoJ further insights into the economy.

USD/JPY slipped 0.16% to close at 146.883 in the week ending August 22. In a pivotal week, the pair climbed to an August 22 high of 148.777 before sliding to a low of 146.571.

Outlook: Retail Sales and Tokyo Inflation to Spotlight the BoJ

Why this week’s economic calendar matters: consumer confidence, retail sales, Tokyo inflation, and labor market data will fuel speculation about a Q4 Bank of Japan rate hike.

July’s national inflation numbers continued to support further monetary policy tightening. However, weakening external demand created uncertainty. A pickup in private consumption would offset the drop in external demand and fuel demand-driven inflation. These scenarios would allow the BoJ to resume the move toward policy normalization.

Super Friday: Key Japanese Data in Focus

Looking ahead, the focus shifts to Friday, August 29. Crucial Japanese economic indicators will affect demand for the Yen.

A steady unemployment rate, a pickup in retail sales, rising consumer confidence, and higher-than-expected core-core inflation would raise bets on a Q4 BoJ rate hike. A stable labor market and improving consumer sentiment could signal an upswing in consumption. Given that the national inflation rate sits well above the BoJ’s 2% target, rising household spending could pressure the BoJ to lift rates.

On the other hand, weak retail sales, rising unemployment, and softer inflation could delay a BoJ rate hike until December or beyond, weighing on the Yen.

When do economists expect the BoJ to raise interest rates?

According to the latest Reuters poll, conducted between August 12 and 19:

• 67 of 73 economists (97%) forecast no change to interest rates in September.
• However, 45 of 71 (63%) expect a 25-basis-point rate hike to 0.75% in the fourth quarter, up from 54% polled in July.
• 38% predicted an October rate hike, with 30% forecasting a January move. Only 18% expected a December hike.

East Asia Econ remarked on July’s national inflation figures on August 22:

“Headline inflation eased in July, BOJ core was unchanged but still higher than 12M before, and international core was stable. High-frequency indicators and recent minimum wage dynamics suggest inflation is here to stay. I’d expect the BOJ to go in October.”

However, this week’s data will move the dial on expectations of further policy tightening in the fourth quarter.

Bookmark our real-time updates to stay ahead of USD/JPY volatility.

USD/JPY Outlook: Economic Indicators and the BoJ

• Bullish Yen Scenario: Strong Japanese data or hawkish BoJ policy signals could push USD/JPY toward 145.
• Bearish Yen Scenario: Weaker Japanese data or dovish BoJ rhetoric may drive the pair toward 150.

US Economic Data and Fed Speakers to Dictate US Dollar Trends

In the US, key economic data and Fed speakers will guide investors on the timing of Fed rate cuts.

Key events include:

• Conference Board Consumer Confidence (August 26): Forecast to increase from 97.2 in July to 98 in August.
• Initial Jobless Claims (August 28): Expected to rise from 235k (week ending August 16) to 236k (August 23).
• Personal Spending (August 29): Forecast to rise 0.5% month-on-month in July after a 0.3% increase in June.
• Personal Income (August 29): Expected to increase 0.4% month-on-month in July, following a 0.3% rise in June.

A drop in consumer confidence and a larger-than-expected rise in jobless claims could signal weaker consumer spending. Concerns about the labor market and spending could support multiple Fed rate cuts. Private consumption accounts for more than 60% of US GDP.

Conversely, an upswing in consumer sentiment and a resilient labor market may support a less dovish Fed policy stance.

Friday’s Personal Income and Outlays Report will provide traders and the Fed with more insights into consumption. Rising personal income and spending would allow the Fed to cut rates more gradually, lifting US dollar demand, while weaker figures could pressure the greenback.

Beyond the data, Fed speeches will also require close monitoring after Fed Chair Powell’s remarks.

Short-term Forecast:

USD/JPY’s near-term outlook will hinge on key economic data and central bank commentary.

• Bullish US Dollar Scenario: Strong US data or hawkish Fed chatter may drive USD/JPY toward the 50-day Exponential Moving Average (EMA).
• Bearish US Dollar Scenario: Softer US data or dovish Fed signals could push USD/JPY toward the 145 support level.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades below the 50-day and 200-day Exponential Moving Averages (EMA), indicating a bearish bias.

A breakout above the 50-day EMA could bring the 200-day EMA into play. A sustained move through the 200-day EMA may pave the way toward the 149.458 resistance level.

On the downside, a break below the August 14 low of 146.214 could allow the bears to target the crucial 145 support level. If breached, 142.5 would be the next key support level.

Key Takeaway

The USD/JPY faces elevated volatility as data and central bank signals steer sentiment on Fed and BoJ policy pivots. Tracking real-time developments will be critical in navigating short-term movements.

Consult our economic calendar for historical and upcoming data.