USD/JPY Forecast: Focus Shifts to Japan Wage Growth and Spending Before Fed Speeches

Highlights

• The USD/JPY gained 0.50% on Monday, ending the session at 150.071.
• Bank of Japan Governor Ueda and risk-on sentiment impacted on the Japanese Yen.
• On Tuesday, wage growth and household spending figures from Japan will garner investor interest.

Monday Overview of USD/JPY Movements

The USD/JPY gained 0.50% on Monday. Following a 0.71% loss on Friday, the USD/JPY ended the session at 150.071. The USD/JPY fell to a low of 149.317 before rising to a high of 150.080.

Household Spending and Wage Growth in Focus

On Tuesday, wage growth and household spending figures for September will draw investor interest. The figures could be significant for the Bank of Japan and its commitment to the ultra-loose monetary policy stance. A pickup in wage growth and an unexpected rise in spending may fuel bets on a Bank of Japan pivot from ultra-loose.

The Bank of Japan has continued to signal the need for wage growth to fuel demand-driven inflation. A pickup in demand-driven inflation would enable the Bank to exit negative rates.

However, economists forecast household spending to decline by 0.4% in September. Significantly, economists expect cash earnings to slow from 1.1% to 1.0% year-over-year.

US Trade Data and the Fed in the Spotlight

On Tuesday, US trade data will be in focus. However, with the US labor market and inflation as the focal points, investors will likely brush aside the numbers. The US trade-to-GDP ratio sits below 30%, limiting the impact of the numbers on the Fed and the US dollar.

However, Fed commentary will need consideration. Fed Vice Chair John Williams is on the calendar to speak on Tuesday. FOMC voting members Michael Barr, Lorie Logan, and Christopher Waller will also deliver speeches.

The markets are betting on the Fed ending its rate hike cycle and delivering a June 2024 rate cut. Hawkish comments relating to the economic outlook and interest rates could drive demand for the US dollar.

Short-term Forecast

After the shift in sentiment toward the Fed interest rate path, the focus turned to the Bank of Japan. Wage growth and household spending figures must signal demand-driven inflation to tip monetary policy divergence toward the Yen and a return to 145.

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 break above the 150.201 resistance level would give the bulls a run at 151.

Economic indicators from Japan and US Fed commentary will be the focal points on Tuesday.

A fall below 149.500 would bring the 50-day EMA and the 148.405 support level into play. Buyer demand could intensify at 148.500. The 50-day EMA is confluent with the 148.405 support level.

The 14-day RSI at 52.71 indicates a USD/JPY return to 151 before entering overbought territory.

4-Hourly Chart

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

A USD/JPY break above the 50-day EMA and 150.201 resistance level would bring 151 into play.

However, a fall to 149.500 would give the bears a run at the 200-day EMA.

The 14-period 4-hourly RSI at 48.19 suggests a USD/JPY break below the 200-day EMA before entering oversold territory.