USD/JPY Forecast: A Peek into Yen’s Future with BOJ Inflation and US Housing Data

Highlights

• USD/JPY rebounds, rising by 0.58% to 146.214, ending a two-day slide and resuming its upward trajectory.
• Bank of Japan core inflation figures are under the lens, expected to drop from 3.0% to 2.7%.
• FOMC member Tom Barkin speaks today, albeit his alternate status might temper its effect on USD/JPY.

Monday Overview

On Monday, the USD/JPY ended the session up 0.58% to 146.214. A mixed start to the day saw the USD/JPY fall to an early low of 145.145 before striking a high of 146.401. Significantly, the USD/JPY ended a two-day losing streak and resumed an upward trend that commenced on August 7.

Intervention Risk to Leave the USD/JPY Short of 146.5 Ahead of PMI Numbers

It is another quiet session on the Asian economic calendar on Tuesday. Following national inflation figures from Friday, the Bank of Japan’s measure for underlying core inflation will draw interest later this morning.

While the National and Tokyo Core inflation numbers tend to have more impact, the increased scrutiny of the Bank of Japan’s monetary policy stance will likely give the report a greater weighting. Economists forecast the Bank of Japan’s core inflation measure to soften from 3.0% to 2.7%.

However, beyond the economic calendar, the ever-present threat of Yen intervention will likely limit the upside for the USD/JPY ahead of August prelim private sector PMIs on Wednesday.

US Housing Sector Numbers Kick Off a Big Week for the Markets

Existing home sales data for July will be in focus this afternoon. Economists forecast existing home sales to decline by 0.5% following a 3.3% slide in June. Another marked decline in existing home sales could raise concerns over consumer sentiment and the outlook for spending.

With the housing sector a barometer for the US economy, sizeable consecutive monthly declines could be an early indicator of a deteriorating macroeconomic environment through tighter bank credit controls. A marked weakening in housing sector conditions may force the Fed to hit the brakes on the monetary policy tightening cycle and consider an early rate cut.

However, it is worth noting that housing sector numbers are volatile, so it is necessary to monitor trends rather than isolated month-on-month numbers. House prices, inventories, and mortgage rates also need consideration when considering the existing home sales report.

Beyond the numbers, investors must also monitor FOMC member commentary ahead of the Jackson Hole Symposium. FOMC member Tom Barkin is on the calendar to speak today. However, Tom Barkin is an alternate member of the Committee, which should limit the impact of forward guidance on the USD/JPY pair.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY below the 146.6 – 147.3 resistance band. After the bullish Monday session, the USD/JPY remained above 50-day and 200-day EMAs, sending bullish near and longer-term price signals.

Looking at the 14-Daily RSI, 65.81 reflects bullish sentiment, supporting a move through the 146.6 – 147.3 resistance band. However, a USD/JPY fall through the upper level of the 145.0 – 144.3 support band would bring sub-144 into play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces resistance at 146.5. The USD/JPY sits below the 146.6 – 147.3 resistance band and the 50-day and 200-day EMAs, affirming the bullish near and longer-term price signals.

The 14-4H RSI reading of 60.75 reflects bullish sentiment, with buying pressure outweighing selling pressure. The RSI signals a move through the lower level of the 146.6 – 147.3 resistance band to retarget 147. However, a fall through 50-day EMA would support a pullback through the 145.0 – 144.3 support band to bring sub-144 into view.