USD/JPY Forecast: Fed Chair Powell to Take Center Stage

Highlights

• The USD/JPY gained 0.64% on Thursday, ending the session at 148.182.
• On Friday, unemployment numbers from Japan could influence market bets on a Bank of Japan exit from negative rates.
• Later today, Fed Chair Powell will be the focal point.

USD/JPY Movements on Thursday

The USD/JPY gained 0.64% on Thursday. After a 0.16% loss on Wednesday, the USD/JPY ended the day at 148.128. The USD/JPY fell to a low of 146.841 before rising to a Thursday high of 148.523.

Unemployment and Manufacturing in Focus

On Friday, unemployment figures from Japan drew investor interest early in the session. The unemployment rate declined from 2.6% to 2.5% in October. Notably, the jobs/applications ratio increased from 1.29 to 1.30, another positive signal from the labor market. Economists forecast the unemployment rate and jobs/applications ratio to remain unchanged.

Improving labor market conditions could support a pickup in consumer spending. An upward trend in consumption would fuel demand-driven inflation and raise bets on a Bank of Japan pivot from negative rates.

Later in the morning session, the finalized manufacturing PMI for November needs consideration. A downward revision to preliminary numbers could affect the timing of a BoJ move. According to the prelim survey, the manufacturing PMI fell from 48.7 to 48.1.

US Manufacturing and Fed Chair Powell in Focus

On Friday, US manufacturing PMI n1umbers will also garner investor interest. Investors remain focused on the economic outlook. Signs of weak demand could test the theory of a soft landing. The ISM Manufacturing PMI will have more influence.

Economists forecast the ISM Manufacturing PMI to increase from 46.7 to 47.6 in November. Beyond the headline figure, the prices, new orders, and employment subcomponents also need consideration. However, the manufacturing sector accounts for less than 30% of the US economy, which should limit the influence on the Fed rate path.

Beyond the stats, Fed Chair Powell is on the calendar to speak. Reaction to the recent GDP and inflation numbers would impact buyer demand for the US dollar.

Short-term Forecast

Near-term trends for the USD/JPY hinge on Fed Chair Powell and Bank of Japan commentary. BoJ Board members recently poured cold water on hopes of a BoJ pivot from negative rates. However, a dovish Powell, favoring an H1 2023 rate cut, may support a USD/JPY move toward 145.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 148.405 resistance level would support a move to the 50-day EMA.

Bank of Japan commentary and Fed Chair Powell are the focal points.

However, a drop below the 147.500 handle would bring the 146.649 support level and the trend line into play.

The 14-day RSI at 42.22 indicates a USD/JPY fall to the 146.649 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY remained below the 50-day and 200-day EMAs, affirming bearish near-term price signals.

A USD/JPY break above the 148.405 resistance level and the 50-day EMA would bring the 200-day EMA into play.

However, a fall through the 147.500 handle would give the bears a run at the 146.649 support level.

The 14-period 4-hour RSI at 49.67 indicates a USD/JPY drop to the 146.649 support level before entering oversold territory.