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USD/JPY Forecast: As the Fed Watches Data, All Eyes on Japanese Yen Decisions

By:
Bob Mason
Updated: Sep 20, 2023, 23:00 GMT+00:00

Amidst the week's economic news, investor focus shifts from the Fed to the Bank of Japan's upcoming stance on ultra-loose monetary policy.

USD/JPY Forecast

In this article:

Highlights

  • USD/JPY showcases volatility with a rise of 0.33% Wednesday, ending at 148.342 after a dynamic session.
  • Investors pivot their attention from Fed decisions to the imminent monetary stance of Japan’s central bank.
  • A vigilant watch on the US labor market could reveal support for an aggressive Fed interest trajectory.

Wednesday Overview of USD/JPY Movements

On Wednesday, the USD/JPY rose by 0.33%. Following a 0.17% gain on Tuesday, the USD/JPY ended the day at 148.342. During another volatile session, the USD/JPY dropped to a low of 147.472 before surging to a Wednesday high of 148.359.

All Eyes on the Bank of Japan and the Ultra-Loose Monetary Policy Stance

After the Fed interest decision and forward guidance, investors should now focus on the Bank of Japan (BoJ).

The discussion on negative rates has amplified in the run-up to the BoJ monetary policy decision. However, recent economic indicators, including wage growth and household spending, suggest the need for ultra-loose monetary policy.

Bank of Japan’s Governor Ueda and Board members require wage growth and demand to drive inflation before rethinking negative rates.

The markets anticipate the BoJ to maintain rates, creating investor uncertainty about negative rates. The BoJ press conference will significantly impact USD/JPY. Concerns over monetary policy and potential government intervention to support the Yen may limit gains today.

US Labor Market to Take Center Stage

US initial jobless claims and Philly Fed Manufacturing Index will be in focus today. With the Fed turning data-dependent, tight labor market conditions would support a more aggressive Fed interest rate trajectory.

Tight labor market conditions support upward trends in wage growth and consumer spending. A more aggressive interest rate trajectory would affect labor market conditions and curb consumer spending. A downward trend in consumption would ease demand-driven inflationary pressures.

Short-term Forecast

The BoJ’s decisions on Friday will impact USD/JPY. While the Fed’s actions delivered few surprises, a hawkish BoJ would be surprising. Talk of the BoJ moving from negative rates would boost Yen demand. Yet, current economic data suggests a continued tilt towards the dollar in monetary policy divergence.

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 148.405 resistance level. However, the USD/JPY sat above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY break above the 148.405 resistance level would support a USD/JPY move toward the 150.293 resistance level. US jobless claims must impress to target 150.

However, a jump in jobless claims would give the bears a run at the 146.649 support level.

The 63.70 14-Daily RSI supports a USD/JPY break above the 148.405 resistance level before entering overbought territory.

USD/JPY Daily Chart sends bullish price signals.
USDJPY 210923 Daily Chart

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, reaffirming bullish price signals. A break above the 148.405 resistance level would bring the 150.293 resistance level into play.

However, a break below the 50-day EMA would support a USD/JPY move toward the 146.649 support level.

The 61.56 14-4 Hourly RSI reading supports a USD/JPY break above the 148.405 resistance level before entering overbought territory.

4-Hourly Chart affirms bullish price signals.
USDJPY 210923 4-Hourly Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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