USD/JPY Forecast: Price Tensions Amid BoJ Surveys and Fed Speaks

Highlights

• The USD/JPY ended the Friday session at 149.322, steadying after a 0.21% decline from Thursday.
• Tankan survey-based figures for Q3 will influence the USD/JPY early.
• Fed Chair Powell and the US ISM Manufacturing PMI will move the dial later today.

Friday Overview of USD/JPY Movements

On Friday, the USD/JPY gained 0.01%. After a 0.21% decline from Thursday, the USD/JPY ended the day at 149.322. The USD/JPY fell to a low of 148.525 before reaching a high of 149.509.

Tankan Survey Numbers for Q3 in the Spotlight

Tankan survey-based figures for the third quarter will garner investor interest this morning. Economists forecast the all-important Tankan Large Manufacturers Index to increase from 5 to 6 in the third quarter.

However, investors must consider the Tankan Big Manufacturing Outlook Index and Large Manufacturers Index figures. Economists predict the outlook index to fall from 9 to 5 and the Non-Manufacturers Index to increase from 23 to 24.

The Bank of Japan (BoJ) conducts the Tankan surveys to assess the mood of manufacturers and non-manufacturers on a quarterly basis. Significantly, the BoJ considers the surveys in future monetary policy decisions, influencing Japanese Yen trends.

US ISM Manufacturing PMI and Fed Chair Powell in Focus

Later today, the US ISM Manufacturing PMI needs consideration. Economists forecast the ISM Manufacturing PMI to increase from 47.6 to 47.8 in September. Traditionally, the manufacturing sector PMIs have less influence on the dollar and the Federal Reserve. The US manufacturing sector contributes less than 30% to the US economy.

However, investor sensitivity to weak numbers puts the manufacturing sector on the map. Deeper cracks across the manufacturing sector would fuel fears of a US economic recession.

Fed Chair Powell may offer a reaction to the softer inflation numbers and tight labor market conditions. The Fed Chair speaks after the release of the ISM Manufacturing PMI survey.

Last week, the probability of a November Fed rate hike slid from 27.5% to 18.3%. However, uncertainty lingers over December. According to the CME FedWatch Tool, the chance of a December Fed rate hike stood at 31.4%, down from 36.7% over the week.

Sentiment toward the Fed’s monetary policy may see significant changes this week. ISM Non-Manufacturing PMI numbers on Wednesday and the US Jobs Report on Friday will move the dial.

Short-term Forecast

Monetary policy divergence remains firmly tilted toward the US dollar. Weak consumer confidence numbers from Japan support the BoJ’s ultra-loose monetary policy stance. However, softer US wage growth and a marked weakening in service sector activity would test the Fed theory of higher for longer.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, indicating bullish price signals. If the pair avoids dropping to the 148.405 support level, it is likely that the bulls will test the 150.293 resistance level.

Disappointing Tankan numbers and a hawkish Fed Chair would deliver a positive session for the USD/JPY.

However, a fall below 149 would support a USD/JPY move to the 148.405 support level.

The 14-Day RSI at 66.39 suggests that USD/JPY could return to 150 before reaching overbought territory.

4-Hourly Chart

The USD/JPY hovers above the 50-day and 200-day EMAs, reaffirming the bullish price signals. Avoiding a drop below the 50-day EMA would support a USD/JPY move to the 150.293 resistance level.

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

The 62.33 14-4 Hourly RSI indicates a USD/JPY return to 150 before entering overbought territory.