USD/JPY Forecast: Navigating the Japanese Yen’s Response to Wages and Household Spending

Highlights

• The USD/JPY fell by 0.41% on Thursday, ending the day at 148.512.
• BoJ’s ultra-loose stance faces a test as August household spending and wages draw investor attention.
• US Job Reports to dictate the trajectory: Hawkish Fed reactions anticipated on solid numbers.

Thursday Overview of USD/JPY Movements

On Thursday, the USD/JPY declined by 0.41%. Reversing a 0.09% gain from Wednesday, the USD/JPY ended the day at 148.512. The USD/JPY fell from an opening price of 149.125 to a low of 148.259.

Household Spending to Test Bank of Japan Ultra-Loose Stance

On Friday, August earnings and household spending numbers from Japan will garner investor interest. Economists forecast household spending to increase by 0.9% (July: -2.7%) and average cash earnings to rise by 1.5% (July: +1.3%).

Bank of Japan (BoJ) Governor Kazuo Ueda and board members recently discussed the requirements to move away from negative interest rates. Significantly, the Bank of Japan needs to see a pickup in wage growth to fuel demand-driven inflation to support a move from negative rates.

Better-than-expected numbers may fuel bets on a near-term shift in forward guidance, a boon for the Yen.

With wages and household spending in focus, investors must monitor BoJ chatter for reaction to the reports.

US Jobs Report and the Fed in the Spotlight

Later today, the US Jobs Report will influence the Fed rate path. A better-than-expected US Jobs Report would likely refuel bets on a more hawkish Fed interest rate trajectory.

Economists forecast average hourly earnings to increase by 4.3% year-over-year and the unemployment rate to fall from 3.8% to 3.7%.

Higher interest rates increase borrowing costs, leading firms to reduce staffing costs for profit. This affects wages and reduces consumer spending. Lower spending eases demand-driven inflation, guiding the Fed towards a milder rate path.

With the US Jobs Report in the spotlight, investors must consider any Fed reaction to the latest numbers. FOMC voting member Christopher Waller is on the calendar to speak today.

Short-term Forecast

Monetary policy divergence remains tilted in favor of the US dollar. However, wage growth and household spending numbers from Japan and the US Jobs Report could materially alter the USD/JPY trend in favor of the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals. A return to 149 would give the bulls a run at the 150.293 resistance level.

A better-than-expected US Jobs Report and hawkish Fed comments would support a breakout session.

However, a jump in household spending and wages in Japan would support a break below the 148.405 support level to target the 146.649 support level and 50-day EMA. Buying pressure will likely intensify at the 146.649 support level. The 50-day EMA is confluent with the support level.

The 14-day RSI at 54.47 suggests a USD/JPY move to the 150.293 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY remains below the 50-day EMA while sitting above the 200-day EMA, sending bearish near-term but bullish longer-term price signals. A move through the 50-day EMA would give the bulls a run at the 150.293 resistance level.

However, a break below the 148.405 support level would support a USD/JPY move toward the 200-day EMA.

The 38.80 14-4 Hourly RSI indicates a USD/JPY a fall through the 148.405 support level before entering oversold territory.