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USD/JPY Forecast: Japan Retail Sales Unexpectedly Slide in December

By:
Bob Mason
Published: Jan 31, 2024, 00:36 UTC

Economic indicators from Japan drew interest on Wednesday. However, the FOMC Rate Statement and Press Conference will dictate USD/JPY trends.

USD/JPY Forecast

In this article:

Highlights

  • The USD/JPY gained 0.07% on Tuesday, ending the session at 147.597.
  • The US CB Consumer Confidence Index and JOLTs Job Openings delivered gains for the session.
  • On Wednesday, retail sales from Japan drew interest before the US session and the Fed interest rate decision.

USD/JPY Movement on Tuesday

The USD/JPY gained 0.07% on Tuesday. Partially reversing a 0.44% loss from Monday, the USD/JPY ended the day at 147.597. The USD/JPY fell to a low of 147.097 before rising to a Tuesday session high of 147.926.

Japan Retail Sales Test Bets on a Bank of Japan Pivot

On Wednesday, retail sales figures from Japan drew investor interest. Retail sales increased 2.1% year-over-year in December versus 5.4% in November. Economists expected retail sales to rise by 4.7%. Month-on-month, retail sales slid by 2.9% (Nov: +1.0%). Economists forecast retail sales to increase by 0.5% month-on-month.

The unexpected fall in retail sales could give the Bank of Japan more reason to delay discussions about exiting negative rates.

Downward trends in consumer spending ease demand-driven inflationary pressures. The Bank of Japan needs wage growth to fuel consumer spending and demand-driven inflation to pivot from negative rates.

Industrial production figures also fell short of expectations. Industrial production increased by 1.8% in December, reversing a 0.9% decline from November. Economists forecast a 2.4% increase.

Beyond the numbers, investors must monitor Bank of Japan commentary. References to wages, inflation, and monetary policy would move the dial.

US Economic Calendar: ADP Employment and the US Federal Reserve

Later in the session, US labor market data and the Fed warrant investor attention. Economists forecast the ADP to report a 145k increase in January. The ADP reported a 164k increase in employment in December. A larger-than-expected increase could reduce bets on a March Fed rate cut.

Tighter labor market conditions could support wage growth and increase disposable income. An upward trend in disposable income may fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could impact borrowing costs and disposable income. Downward trends in disposable income would curb consumer spending and dampen demand-driven inflation.

However, investors must also consider employment costs for Q4. With wage growth the focal point, the employment cost – wages figures could have more impact. Economists forecast wages to increase by 1.1% quarter-on-quarter in Q4 versus 1.2% in Q1.

While the numbers need consideration, the Fed interest rate decision is the main event. Economists expect the Fed to leave interest rates at 5.50%. However, uncertainty remains about the timing of an interest rate cut. Forward guidance on the economy, inflation, and interest rates will impact the USD/JPY.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on the Fed interest rate decision, forward guidance, and BoJ chatter. A more hawkish-than-expected Fed outlook on interest rates could drive buyer demand for the US dollar.

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 move above the 148.405 resistance level would bring the 150.201 resistance level into play.

On Wednesday, Bank of Japan commentary and the Fed warrant investor attention.

However, a break below the 147 handle would support a fall to the 146.649 support level. A fall through the 146.649 support level would bring the 50-day EMA into play.

The 14-day RSI at 56.96 indicates a USD/JPY move to the 149 handle before entering overbought territory.

USD/JPY Daily Chart sends bullish price signals.
USDJPY 310124 Daily Chart

4-Hourly Chart

The USD/JPY sat below the 50-day EMA while remaining above the 200-day EMA, confirming bearish near-term but bullish longer-term price trends.

A USD/JPY breakout from the 50-day EMA would give the bulls a run at the 148.405 resistance level.

However, a break below the 147 handle would support a fall to the 146.649 support level.

The 14-period 4-hour RSI at 44.37 indicates a USD/JPY drop to the 146.649 support level before entering oversold territory.

4-Hourly Chart sends bearish near-term price signals.
USDJPY 310124 4-Hourly Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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