USD/JPY Forecast: Private Sector PMIs and Bank of Japan Policy Speculation in Focus

Highlights

• The USD/JPY slipped by 0.08% on Monday, ending the session at 149.703.
• On Tuesday, flash private sector PMI from Japan will set the tone.
• US Services PMI numbers and news updates from the Middle East will also draw investor attention.

Monday Overview of USD/JPY Movements

On Monday, the USD/JPY slipped by 0.08%. Reversing a 0.03% gain from Friday, the USD/JPY ended the session at 149.703. The USD/JPY rose to a high of 149.990 before falling to a low of 149.555.

Services PMI and the Bank of Japan in Focus

October Flash private sector PMIs from Japan will draw investor attention on Tuesday. The services sector PMI will likely have more influence on the Yen, with services contributing more than 65% to the economy. Economists forecast the Judo Bank Services PMI to fall from 53.8 to 52.9.

Investors must consider the sub-components, including prices and employment. The Bank of Japan needs a pickup in wage growth and demand-driven inflation to exit negative rates. An uptrend in hiring and rising staffing costs may fuel speculation of a Bank of Japan move away from ultra-loose policy.

US Services PMI in Focus During Fed Blackout Period

Later today, US S&P Global Services PMI will influence buyer appetite for the USD/JPY. An unexpected pickup in service sector activity may fuel bets on a December Fed rate hike. Economists forecast the S&P Global Services PMI to fall from 50.1 to 49.9.

However, investors must consider the sub-components, including employment and prices. Tighter labor market conditions and an uptrend in staff costs would support a more hawkish Fed rate path. Wage growth fuels consumption and demand-driven inflation. A more aggressive interest rate trajectory impacts borrowing costs and disposable income, affecting consumption.

Beyond the numbers, news updates from the Middle East need consideration. Iran’s involvement in the Middle East conflict would likely drive demand for the safety of the Yen.

Short-term Forecast

Service sector PMIs from Japan and the US will influence near-term USD/JPY trends before the US inflation figures. However, the Middle East conflict remains a headwind for the USD/JPY. A widening conflict involving Iran would support buyer demand for the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY move through 150 would give the bulls a run at the 150.293 resistance level.

News updates from the Middle East and service sector PMIs will be focal points.

An escalation in the Middle East conflict and a contraction in the US services sector may impact the buying appetite for the USD/JPY. A fall through the 148.405 support level would bring the 50-day EMA into play.

The 14-day RSI at 58.79 indicates a USD/JPY breakout from the 150.293 resistance level to 151 before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 50-day and 200-day EMAs, reaffirming bullish price signals. A breakout from 150 would support a break above the 150.293 resistance level to target 151.

However, a fall through the 50-day EMA would give the bears a run at the 200-day EMA and the 148.405 support level. Buying pressure will likely intensify at 148.500. The 200-day EMA is confluent with the 148.405 support level.

The 45.01 14-4 Hourly RSI indicates a USD/JPY break below the 50-day EMA and 149 handle before entering oversold territory.