USD/JPY Forecast: Navigating the BoJ Stance and US ADP Employment Change

Highlights

• On Tuesday, the USD/JPY fell by 0.46% after a range-bound morning, ending the day at 145.859.
• Softer US labor market conditions ease wage growth and rein in consumption.
• Economists forecast the ADP to report a 195k increase in employment versus 324k in July.

Tuesday Overview

The USD/JPY fell by 0.46% on Tuesday. Reversing a 0.10% gain from Monday, the USD/JPY ended the day at 145.859. After a range-bound morning, the USD/JPY jumped to a high of 147.375 before sliding to a low of 145.667.

Consumer Confidence and the BoJ in Focus

After disappointing unemployment figures from Japan on Tuesday, consumer confidence will draw interest this morning. An upward trend in unemployment supports the Bank of Japan’s ultra-loose monetary policy stance.

An unexpected slide in consumer confidence would ease market expectations of a shift in Bank of Japan monetary policy. Weaker consumer confidence would signal a likely pullback in consumption. The Bank of Japan is monitoring domestic demand and wage growth. A shift in inflation dynamics, supported by consumer demand and higher wages, would move the BoJ from its ultra-loose perch.

US ADP Nonfarm Employment Change in the Spotlight

Later today, investors will return their attention to the US labor market. Following the larger-than-expected slide in JOLTs job openings, a modest increase in employment would give investors more reason to close the door on further Fed rate hikes.

Economists forecast the ADP to report a 195k increase in employment change versus a 324k jump in July. Softer labor market conditions would ease wage growth and rein in consumption. Slower wage growth would impact disposable incomes in the current interest rate environment and ease demand-driven inflationary pressures.

Other stats include second-estimate GDP numbers for Q2, trade data, and housing sector numbers. However, barring a sharp downward revision to the GDP numbers, the stats should have a limited impact on the USD/JPY.

Investors will likely consider the GDP numbers dated following the latest consumer confidence and JOLTs job opening numbers.

USD/JPY Price Action

Daily Chart

The upper level of the 146.6 – 147.3 resistance band capped the upside on Tuesday. Further price action is likely today. US ADP employment change and Q2 GDP numbers will draw interest. Weaker-than-expected numbers would likely see the USD/JPY test the upper level of the 145.0 – 144.3 support band.

Considering the 14-Daily RSI at 59.79, the USD/JPY has more room to run before hitting overbought territory.

Despite the Tuesday pullback, the 50-day and 200-day EMAs send bullish signals. Better-than-expected ADP and GDP numbers would give the bulls another run at the upper level of the 146.6 – 147.3 resistance band.

4-Hourly Chart

The 4-Hourly Chart affirms the near and longer-term price signals, with the USD/JPY avoiding a slide through the 50-day EMA. However, weaker-than-expected US ADP employment change figures would support a fall through the 50-day EMA to bring the 145.0 – 144.3 support band into play.

Despite the Tuesday reversal, the EMAs send bullish price signals. Better-than-expected ADP and Q2 GDP numbers would give the bulls another run at the upper level of the 146.6 – 147.3 resistance band.

The 14-4H RSI reading of 47.63 gives the USD/JPY plenty of room to fall before hitting oversold territory.