USD/JPY Forecast: BoJ and Fed Speakers Hold the Key to Near-Term Trends

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Published: Nov 17, 2023, 01:30 GMT+00:00

Weaker Q3 GDP, trade slump, and inflation pressures pose challenges for the Japanese Yen as Bank of Japan faces decisions.

Thursday Overview of USD/JPY Movements

The USD/JPY declined by 0.39% on Thursday. After a 0.63% gain on Wednesday, the USD/JPY ended the session at 150.722. The USD/JPY rose to a high of 151.430 before falling to a low of 150.286.

End of the Negative Rate Era or?

Speculation about the Bank of Japan exiting negative interest rates continues to do the rounds. Yet, despite the talk of a pivot from ultra-loose, the USD/JPY has continued to traverse within the 150 – 152 band for seven straight sessions.

Weaker-than-expected Q3 GDP numbers, a slump in imports, and a more modest rise in exports suggest the need for caution. However, amid the doom and gloom, inflation remains elevated. The inflation environment is pressuring the BoJ to address the matter.

In contrast, other central banks are reaching the end of their rate hike cycles. The dynamics suggest that Yen strength is on the horizon.

Bank of Japan Governor Kazuo Ueda appears to be readying the markets for a decisive policy maneuver. In recent speeches, Ueda dropped the need for wage growth to tighten policy. However, a BoJ maneuver could hinge on the seasonal wage talks between unions and companies.

On Tuesday, November 14, BoJ Deputy Gov. Shinichi Uchida discussed plans to incentivize firms to boost wages with corporate profits.

With no economic indicators from Japan to consider, more decisive forward guidance on BoJ policy could break the yen free from its current range.

US Housing Market and Fed Speakers Will Be in Focus

On Friday, US housing market figures for October will draw investor interest. A larger-than-expected slide in building permits and housing starts could align with bets on a housing sector recession.

The US construction sector accounts for less than 10% of the US economy. However, a housing recession fuels foreclosures and a house price correction and affects consumer confidence. Waning consumer confidence could signal a negative outlook on spending, impacting the US economy.

US private consumption contributes over 60% to the US economy. The impact of a housing sector recession on consumers and the US economy could be significant. An upward trend in foreclosures would also affect credit conditions, giving consumers less access to credit to drive consumption.

Economists forecast building permits and housing starts to decline by 1.5% and 1.3%, respectively. The numbers are volatile, meaning investors must consider trends and not a monthly figure in isolation.

Beyond the numbers, FOMC members Michael Barr and Mary Daly are on the calendar to speak. Comments relating to the US economy and interest rates need consideration.

Short-term Forecast

The near-term USD/JPY trends hinge on Bank of Japan and Fed speakers. Affirmation of a Fed move toward an H1 2024 rate cut and a BoJ exit from negative rates would fuel an extended slump in the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY move to 151 would give the bulls a run at the 151.889 resistance level.

Central bank speakers and US housing sector numbers will influence sentiment toward the USD/JPY.

A fall through the 150.201 support level would bring the 50-day EMA into view.

The 14-day RSI at 53.26 indicates a USD/JPY break above the 151.889 resistance level before entering overbought territory.

USD/JPY Daily Chart sends bullish price signals.

USDJPY 171123 Daily Chart

4-Hourly Chart

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

A USD/JPY break below the 150.201 support level would give the bears a run at the 200-day EMA and 149.500.

However, a move through the 50-day EMA would support a move toward the 151.889 resistance level.

The 14-period 4-hour RSI at 42.40 indicates a USD/JPY fall to the 200-day EMA before entering oversold territory.

4-Hourly Chart sends bearish near-term price signals.

USDJPY 171123 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.