USD/JPY Forecast: Navigating Yen’s Path Amidst BoJ and Fed Divergence

Highlights

• The USD/JPY declined by 0.97% on Friday, ending the session at 146.748.
• Fed Chair Powell sank the USD/JPY on dovish comments relating to monetary policy.
• Later today, US factory orders will draw investor interest.

USD/JPY Movements on Friday

The USD/JPY slid by 0.97% on Friday. After a 0.64% gain on Thursday, the USD/JPY ended the day at 146.748. The USD/JPY rose to a high of 148.345 before falling to a low of 146.659.

Economic Indicators from Japan to Dictate BoJ Pivot Bets

It is an important week for the Japanese Yen. Tokyo inflation numbers on Tuesday could fuel bets on a Bank of Japan pivot from negative rates. Recent BoJ speeches suggest Board members are in no hurry to exit negative rates. However, pressure remains on the BoJ to combat inflation.

A pickup in household spending would fuel demand-driven inflation and give the BoJ more reason to pivot. Household spending numbers are out on Friday.

There are no economic indicators from Japan for investors to consider on Monday. However, investors should monitor BoJ chatter throughout the session.

US Factory Orders in Focus

On Monday, US factory orders will draw investor interest. A larger-than-expected decline in factory orders could fuel bets on a March Fed rate cut. The US manufacturing sector contributes less than 30% to the US economy. However, a slump in orders could signal a deteriorating demand environment.

Early signs of a waning US economy could also trigger Fed discussions about rate cuts. The Fed will want to avoid a hard landing.

Economists forecast factory orders to fall by 2.6% in October. In September, factory orders increased by 2.8%.

After Fed Chair Powell’s speech, investors must monitor Fed commentary. Any deviation from the less hawkish script could dampen expectations of a Fed rate cut in Q1 2024.

Short-term Forecast

Near-term trends for the USD/JPY hinge on economic indicators. Weaker US service sector activity and softer wage growth would support bets on a Q1 2024 rate cut. In contrast, hotter-than-expected stats from Japan would tilt policy divergence toward the Yen. The markets are betting on a BoJ pivot from negative rates.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 147.500 would support a move toward the 148.405 resistance level and the 50-day EMA.

Bank of Japan commentary and US factory orders are focal points on Monday.

However, a break below the trend line and the 146.649 support level would bring the 144.713 support level into view.

The 14-day RSI at 36.55 suggests a USD/JPY break below the 146.649 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY sat below the 50-day and 200-day EMAs, reaffirming bearish near-term price signals.

A USD/JPY move to 147.500 would give the bulls a run at the 50-day EMA and the 148.405 resistance level.

However, a fall through the trend line and the 146.649 support level would bring sub-146 into play.

The 14-period 4-hour RSI at 36.64 suggests a USD/JPY break below the 146.649 support level and trend line before entering oversold territory.