USD/JPY Forecast: Bulls Eye 147 With Inflation to Fuel Price Direction

Highlights

• USD/JPY fell by 0.35%, ending Thursday at 145.834 after a bullish start.
• Japan’s inflation numbers are the key today, with July figures pivotal for USD/JPY.
• Dovish Fed commentary, amid lack of US indicators, could sway USD/JPY.

Overview

On Thursday, the USD/JPY fell by 0.35% to wrap up the day at 145.834. A bullish start to the day saw the USD/JPY strike an early high of 146.560 before sliding to a low of 145.617. US economic indicators failed to deliver a bullish afternoon session. The threat of further intervention provided Yen support.

Japan Inflation Forecasts Support BoJ in Ultra-Loose Mode

It is a pivotal morning session for the USD/JPY. National inflation figures from Japan will draw interest this morning. Despite tweaking the Yield Curve Control policy last month, the Bank of Japan remains in ultra-loose mode vis-à-vis monetary policy.

Softer inflation figures for July would support the status quo and leave the dollar in the driving seat. However, an unexpected pickup in inflationary pressure could test the ultra-loose theory.

In June, the core inflation rate accelerated to 3.3%, keeping the pressure on the Bank of Japan. Significantly, Japan’s government forecasts inflation at 2.6% this fiscal year while projecting growth of 1.5%.

Economists forecast the annual inflation rate to soften from 3.3% to 2.5% and core inflation to ease from 3.3% to 3.1%. Softer-than-expected inflation figures would leave monetary policy divergence firmly in favor of the dollar and support USD/JPY gains.

Beyond the economic calendar, stimulus chatter from Beijing and the threat of a Yen intervention need consideration.

Fed Commentary to Dictate the US Session

There are no US economic indicators to draw interest today. The lack of economic indicators leaves the USD/JPY in the hands of FOMC member commentary. Recent US economic indicators and the FOMC meeting minutes have opened the door to further Fed interest rate hikes.

Investors should monitor the news wires, with dovish commentary likely to catch the markets off-guard. Currently, monetary policy divergence favors the dollar supporting a USD/JPY run at 147. Hotter-than-expected inflation numbers from Japan and dovish Fed forward guidance could tip the scales.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY holding above the 145.0 – 144.3 support band. Despite the bearish session, the USD/JPY remained above 50-day and 200-day EMAs, sending bullish near and longer-term price signals.

Looking at the 14-Daily RSI, 66.07 reflects bullish sentiment, supporting a run at the 146.6 – 147.3 resistance band. However, a USD/JPY fall through the upper level of the 145.0 – 144.3 support band would give the bears a look at sub-144.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 146. The USD/JPY sits above the 145.0 – 144.3 support band and the 50-day and 200-day EMAs, affirming the bullish near and longer-term price signals.

A hold above the 145.0 – 144.3 support band and the 50-day EMA would give the bulls a run at the 146.6 – 147.3 resistance band. However, a fall through the upper levels of the 145.0 – 144.3 support band and 50-day EMA would give the bears a look at sub-144.

The 14-4H RSI reading of 56.81 reflects bullish sentiment, with buying pressure outweighing selling pressure. The RSI aligns with the 50-day EMA, supporting a run at the 146.6 – 147.3 resistance band.