USD/JPY Forecast: Bank of Japan’s Move Amidst Inflation Surge

Highlights

• The USD/JPY declined by 0.09% on Friday, ending the session at 149.399.
• Bets on a Bank of Japan pivot from negative rates left the USD/JPY at sub-150.
• On Monday, the Bank of Japan and the US economic calendar will be focal points.

USD/JPY Movements on Friday

The USD/JPY declined by 0.09% on Friday. After a flat session on Thursday, the USD/JPY ended the day at 149.399. The USD/JPY rose to an early high of 149.713 before falling to a low of 149.195.

Investors Are Awaiting a Bank of Japan Response to Inflation Numbers

On Friday, a pickup in inflationary pressures supported bets on a Bank of Japan exit from negative rates. In October, the annual inflation rate accelerated from 3.0% to 3.3%, while core inflation rose from 2.8% to 2.9%.

A response from the Bank of Japan to the inflation report could impact buyer appetite for the Yen.

Bank of Japan Governor Kazuo Ueda recently signaled that the BoJ may exit negative rates before wage growth materializes. The latest inflation numbers could put the BoJ under more pressure to signal a policy shift.

BoJ Board Members Adachi (Wed) and Nakamura (Thurs) are on the calendar to speak this week. However, investors should also monitor unscheduled speeches.

There are no economic indicators from Japan for investors to consider on Monday.

US New Home Sales in Focus

On Monday, US new home sales figures for October will garner investor interest. A larger-than-expected fall in new home sales could test buyer demand for the US dollar.

The US housing sector is a barometer of the US economy. A deteriorating housing sector would impact consumer confidence and consumer spending. Downward trends in consumer spending would ease demand-driven inflationary pressures but affect the US economy. US private consumption contributes over 60% to the US economy.

Economists forecast new home sales to fall 4.0% after surging 12.3% in September.

The US manufacturing sector will also be in the spotlight. Investors could respond to the Dallas Fed Manufacturing Index report. The US manufacturing sector contributes less than 30% to the US economy. However, cracks in the US economy could raise fears of a hard landing. Economists expect the index to increase from -19.2 to -17.0 in November.

Short-term Forecast

Near-term trends hinge on the Bank of Japan, US inflation numbers, and Fed Chair Powell. More decisive comments from the Bank of Japan on exiting negative rates would support a USD/JPY move toward 145. However, a tight US labor market remains a tailwind for the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY move to 150 would give the bulls a run at the 150.201 resistance level and the 151 handle.

The Bank of Japan and the US economic calendar are focal points for the Monday session.

A break below the 50-day EMA would support a fall to the 148.405 support level.

The 14-day RSI at 48.25 indicates a USD/JPY drop to the 148.405 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY remained below the 200-day EMA while holding above the 50-day EMA, sending bullish near-term but bearish longer-term price signals.

A USD/JPY move through the 200-day EMA would bring the 150.201 resistance level into play.

However, a break below the 50-day EMA would give the bears a run at the 148.405 support level.

The 14-period 4-hour RSI at 54.08 suggests a USD/JPY move to the 150.201 resistance level before entering overbought territory.