USD/JPY Forecast: Price Fluctuates Amidst US Consumer Sentiments and BoJ Policy Stance

Highlights

• USD/JPY: Thursday saw a rise of 0.43%, settling at 149.804 after a peak of 149.828 and a dip to 148.954.
• China’s Impact: Absence of Japanese indicators on Friday; China’s inflation and trade data to sway market sentiment.
• Short-Term Outlook: US CPI and BoJ comments favor the US dollar, but the Middle East conflict remains a potential obstacle.

Thursday Overview of USD/JPY Movements

On Thursday, the USD/JPY rose by 0.43%. Following a 0.14% gain on Wednesday, the USD/JPY ended the day at 149.804. The USD/JPY fell to a low of 148.954 before reaching a high of 149.828.

Bank of Japan Remains Ultra-Loose as Investor Focus Turns to China

Investor hopes of a Bank of Japan (BoJ) move away from negative rates eased this week. On Thursday, BoJ board member Asahi Noguchi cooled hawkish BoJ policy bets. Significantly, Noguchi pointed out that if wage growth trailed consumer price inflation, consumers would have to reduce spending.

Wage growth and demand-driven inflation remain prerequisites for a BoJ move away from negative rates.

Sentiment toward the monetary policy outlook will test buyer appetite for the Yen. However, risk-off sentiment stemming from the Middle East conflict may cushion the downside for the Yen. There are no economic indicators from Japan to consider on Friday.

However, inflation and trade data from China will influence market risk sentiment.

US Consumer Sentiment and the Fed in the Spotlight

On Friday, consumer sentiment will provide direction to the USD/JPY. An unexpected pickup in consumer sentiment would support more hawkish Fed rate hike bets. Economists forecast the Michigan Consumer Sentiment Index to fall from 68.1 to 67.2 in October.

An upward trend in consumer sentiment would signal a positive consumption outlook. Increased consumer spending can fuel demand-driven inflation, prompting the Fed to consider hiking rates as a measure to curb spending.

Higher interest rates affect borrowing costs, making firms cut staff costs to manage profit margins. A deteriorating labor market environment would lead to a pullback in spending on non-essential items, easing demand-driven inflationary pressures.

After the hotter-than-expected US CPI Report, investors must monitor FOMC member speeches throughout the session. FOMC member support for further Fed rate hikes to tackle inflation would support buyer appetite for the US dollar.

Beyond the economic calendar, news updates from the Middle East also warrant consideration. A pre-weekend escalation in the conflict would support demand for the Japanese Yen.

Short-term Forecast

The US CPI Report and BoJ commentary tilted monetary policy divergence firmly toward the US dollar. However, the Middle East conflict and intervention threats will remain headwinds for the USD/JPY at around the 150 handle.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, sending bullish price signals. A break above the 150.293 resistance level would support a move toward 151.

Hawkish Fed commentary and an unexpected pickup in consumer confidence would support the appetite for the US dollar.

However, a slump in consumer sentiment and an escalation in the Middle East conflict would weigh on the USD/JPY. A drop below the 148.405 support level would bring the 50-day EMA into play.

The 14-day RSI at 61.58 supports a USD/JPY move to the 150.293 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY sits above the 50-day and 200-day EMAs, reaffirming bullish price signals. A break above the 150.293 resistance level would give the bulls a run at 151.

However, a fall through the 50-day EMA would bring the 148.405 support level into play.

The 65.92 14-4 Hourly RSI supports a USD/JPY move to the 150.293 resistance level before entering overbought territory.