USD/JPY Forecast: BoJ Exit Bets Affect Market Trends Before the October Inflation Report

Highlights

• The USD/JPY gained 0.01% on Tuesday, ending the session at 148.381.
• Market reaction to the FOMC Meeting Minutes fueled a recovery from a Tuesday session low of 147.150.
• On Wednesday, the US economy will be the focal point.

USD/JPY Movements on Tuesday

The USD/JPY gained 0.01%. After a 0.76% slide on Monday, the USD/JPY ended the session at 148.381. The USD/JPY fell to a low of 147.150 before rising to a session high of 148.595.

Bets on a Bank of Japan Exit from Negative Rates Remains the Theme

On Tuesday, the USD/JPY tumbled to a session low of 147.150 before rebounding. The downward trend in the USD/JPY reflects rising bets on the BoJ pivoting from ultra-loose. In recent speeches, BoJ Governor Ueda discussed exiting negative rates without wage growth.

Inflation remains a bugbear for the BoJ, with the national inflation rate at 3.0%. Significantly, economists forecast the inflation rate to accelerate to 3.2% in October. Another pickup in inflationary pressures would raise bets on the BoJ pivoting from its ultra-loose policy stance.

There are no economic data from Japan for investors to consider on Wednesday. The lack of stats will leave BoJ commentary to influence the buyer appetite for the Yen. Inflation numbers for October are out on Friday.

US Consumer Sentiment and Jobless Claims in Focus

On Wednesday, Michigan Consumer Sentiment and jobless claims warrant consideration. The overnight FOMC Meeting Minutes revealed a willingness to respond to inflation reaccelerating.

An unexpected rise in jobless claims and a downward Michigan Consumer Sentiment Index revision could bolster Fed rate cut bets.

Economists forecast initial jobless claims to fall from 231k to 225k. According to preliminary figures, the Michigan Consumer Sentiment Index fell from 63.8 to 60.5 in November.

Weaker labor market conditions ease wage growth pressures, reducing disposable income. Waning consumer sentiment and a downward trend in disposable income affect consumer spending. Weaker consumer spending trends ease demand-driven inflationary pressures and the need for a hawkish rate path.

Short-term Forecast

Market bets on a BoJ exit from negative rates and a May Fed rate cut tilt monetary policy divergence toward the Yen. Inflation figures from Japan could further fuel bets on a BoJ move, supporting a USD/JPY fall toward 145.

USD/JPY Price Action

Daily Chart

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

A USD/JPY move through the 148.405 resistance level would bring the 50-day EMA into play. A break above the 50-day EMA would send bullish price signals.

US economic indicators and the Bank of Japan will be focal points.

A drop below the 148 handle would give the bears a run at the 146.649 support level. Rising US jobless claims and weaker consumer sentiment could fuel a USD/JPY sell-off.

The 14-day RSI at 39.26 suggests a USD/JPY fall to sub-148 before entering oversold territory.

4-Hourly Chart

The USD/JPY remains below the 50-day and 200-day EMAs, affirming bearish near-term price signals. Significantly, the 50-day crossed through the 200-day EMA, another bearish price signal.

A USD/JPY fall below the 148.000 handle would give the bears a run at the 146.649 support level.

However, a move through the 148.405 resistance level would bring the EMAs into view.

The 14-period 4-hour RSI at 34.25 suggests a USD/JPY fall below 148 before entering oversold territory.