USD/JPY Forecast: As Yen Wobbles, All Eyes on BoJ Speculation and FOMC’s Hawkish Signals
- USD/JPY gained 0.17% on Tuesday to end the session at 147.855.
- Japanese trade data for August hints at a wider deficit, with global demand weakening.
- Markets eagerly anticipate the Fed’s stance and the potential impacts on global currency dynamics.
Tuesday Overview of USD/JPY Movements
On Tuesday, the USD/JPY gained 0.17%. Following a 0.15% loss on Friday, the USD/JPY ended the day at 147.855. During a volatile session, the USD/JPY dropped to a low of 147.505 but later rose to a Tuesday high of 147.924.
Japanese Trade and Bank of Japan Speculation to Offer Early Direction
This morning, Japanese trade data for August will garner investor interest. The weak global demand environment suggests a wider trade deficit. A deteriorating global macroeconomic environment could raise doubts over a Bank of Japan (BoJ) shift from negative rates in the near term.
Economists forecast the trade deficit to widen from ¥78.7 billion to ¥659.1 billion. Beyond the headline number, investors should consider trade terms with major trade partners, including China and the US. Economists expect exports to decline by 1.7% versus a 0.3% fall in July.
Beyond the numbers, investors will continue to speculate about the timing of a BoJ move away from negative rates. The BoJ could affirm the conditions under which the BoJ would tweak interest rates. Wage growth and demand are consistent requirements among BoJ Board members.
A deteriorating macroeconomic environment would impact labor market conditions. A weakening labor market environment would affect wage growth and demand-driven inflation.
US Federal Reserve in the Driving Seat
The US Federal Reserve will deliver its interest rate decision later today. Barring a surprise Fed rate hike, the markets will focus on the FOMC economic indicators and the FOMC press conference.
Upwardly revised GDP and inflation projections and lowered unemployment forecasts would support a hawkish Fed rate trajectory. Investors should assess the likelihood of a November rate hike and the timing of the first rate cut.
A hawkish Fed pause on interest rates would kickstart a USD/JPY rally.
The near-term trajectory of the USD/JPY sits in the hands of the US Federal Reserve. However, the US dollar faces downside risk, with the markets expecting upbeat revisions to the FOMC economic projections.
USD/JPY Price Action
The USD/JPY hovered below the 148.405 resistance level. However, the USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals.
A USD/JPY return to 148 would support a USD/JPY break above the 148.405 resistance level. The FOMC economic projections and Fed Chair Powell need to paint a hawkish outlook to drive demand for the dollar.
However, a dovish Fed rate pause would bring the 146.649 support level into play. A break below the 146.649 support level would give the bears a look at the 144.894 support level and the 50-day EMA.
The 60.95 14-Daily RSI supports a USD/JPY move through the 148.405 resistance level before entering overbought territory.
The USD/JPY remains above the 50-day and 200-day EMAs, reaffirming bullish price signals. A break below the 50-day EMA would support a USD/JPY move to the 146.649 support level.
However, a USD/JPY break above the 148.405 resistance level would bring the 150.293 resistance level into view.
The 56.18 14-4 Hourly RSI reading supports a USD/JPY break above the 148.405 resistance level before entering overbought territory.