USD/JPY Forecast: Japan Household Spending Test Bets on a BoJ Pivot

Highlights

• The USD/JPY declined by 0.26% on Monday, ending the session at 144.226.
• Softer US consumer inflation expectations contributed to the loss.
• On Tuesday, household spending and inflation numbers from Japan drew investor interest.

USD/JPY Movements on Monday

The USD/JPY declined by 0.26% on Monday. Following a 0.02% loss on Friday, the USD/JPY ended the session at 144.226. The USD/JPY rose to a high of 144.915 before falling to a low of 143.660.

Bank of Japan: Household Spending and Inflation in Focus

On Tuesday, household spending and inflation numbers for Tokyo drew investor interest. A pickup in household spending could pressure the Bank of Japan to pivot from negative rates. The Bank of Japan needs a pickup in demand-driven inflation to exit negative rates.

Higher wages and an upward trend in household spending would fuel demand-driven inflation. Sticky inflation could also influence Bank of Japan discussions about a pivot from negative rates.

However, household spending declined by 1.0% in November, after a 0.1% fall in October. Economists forecast a 0.2% increase. Household spending was down 2.9% year-over-year (Oct: -2.5%). Economists forecast household spending to fall by 2.3% year-over-year.

The annual inflation rate for Tokyo softened from 2.6% to 2.4% in December. Economists expected an inflation rate of 2.5%.

Significantly, the latest figures could ease pressure on the Bank of Japan to exit negative rates in Q1. A downward trend in household spending cools demand-driven inflation, easing the need for a more hawkish BoJ policy stance.

US Economic Optimism and Fed Chatter

On Tuesday, sentiment toward the US economy will draw investor interest. After the softer-than-expected Consumer Inflation Expectations, a positive outlook could drive buyer demand for the USD/JPY. The markets are betting on a soft landing. Better-than-expected numbers would align with the markets.

Economists forecast the RCM/TIPP Economic Optimism Index to increase from 40 to 41 for January. However, barring a slump in economic optimism, the numbers are unlikely to influence bets on a Q1 Fed rate cut. The US CPI Report on Thursday will be the focal point.

Other stats include US trade data, which should have a limited impact on the USD/JPY pair. However, Fed commentary needs consideration. Comments on the US Jobs Report, inflation, and the Fed rate path would move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US CPI Report and central bank commentary. After the stats from Japan on Tuesday, the US CPI Report could tilt policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY remained 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 144.713 resistance level would support a move to the 50-day EMA and 146 handle.

Central bank commentary and US economic sentiment figures are in focus.

However, a fall through the 200-day EMA would bring the 142.177 support level into play.

The 14-day RSI at 49.97 indicates a USD/JPY fall to the 142.177 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY sat 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 above the 144.713 resistance level and 200-day EMA would support a move toward the 146.649 resistance level. Selling pressure could intensify at 144.800. The 200-day EMA is confluent with the 144.713 resistance level.

However, a fall through the 50-day EMA would give the bears a run at the 142.177 support level.

The 14-period 4-hour RSI at 54.53 indicates a USD/JPY move to the 146 handle before entering overbought territory.