USD/JPY Forecast: Retail Sales and Industrial Production Bring Sub-141 into Play

Highlights

• The USD/JPY declined by 0.41% on Wednesday, ending the session at 141.814.
• Economic indicators from Japan garnered investor interest early in the Thursday session.
• US labor and housing market numbers also warrant consideration later in the session.

USD/JPY Movements on Wednesday

The USD/JPY declined by 0.41% on Wednesday. Reversing a 0.08% gain from Tuesday, the USD/JPY ended the session at 141.814. The USD/JPY rose to a high of 142.845 before falling to a low of 141.542.

Japanese Economic Data to Put the Bank of Japan in the Spotlight

On Thursday, retail sales and industrial production figures drew investor interest. The Bank of Japan remains hesitant about exiting negative rates. A pickup in consumer spending could fuel demand-driven inflation and enable the BoJ to pivot from negative rates. However, concerns about the macroeconomic environment continue to influence near-term policy decisions.

Japanese data provided mixed signals, with retail sales increasing while industrial production declined.

Retail sales increased by 5.3% year-over-year in November vs. 4.2% in October. Economists forecast retail sales to be up 5.0%. Month-on-month, retail sales increased by 1.0%.

Industrial production declined by 0.9% in November vs. a 1.3% increase in October. Economists forecast industrial production to decline by 1.6%. The less marked than expected fall in industrial production and better-than-expected retail sales figures could pressure the BoJ to consider exiting negative rates.

US Labor Market in the Spotlight

On Thursday, US labor market indicators will garner investor interest. Tighter labor market conditions could test market bets on a Q1 2024 Fed rate cut. A tighter labor market could support wage growth and disposable income.

Upward trends in disposable income could fuel consumer spending and demand-driven inflation. The net effect could force the Fed to keep rates higher for longer. A higher for longer rate path would curb consumer spending and dampen demand-driven inflationary pressures.

Economists forecast initial jobless claims to increase from 205k to 210k in the week ending December 23.

However, investors must also consider housing sector data. Economists consider housing sector data as leading economic indicators. Improving housing market conditions could support consumer confidence and spending. Economists predict pending home sales to increase by 1.0% in November vs. a 1.5% decline in October.

Beyond the numbers, FOMC member commentary also needs tracking. Dovish comments after the recent inflation numbers would impact buyer demand for the US dollar.

Short-term Forecast

Near-term USD/JPY trends will hinge on expectations of a Bank of Japan pivot from negative rates. Rising bets on a Q1 2024 Fed rate cut and BoJ pivot support a USD/JPY return to sub-140.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, sending bearish price signals.

A USD/JPY move through the 142.177 resistance level would give the bulls a run at the 200-day EMA.

Market reaction to the economic indicators from Japan and the US economic calendar will influence demand for the USD/JPY.

However, a fall through the 141 handle would bring the 139.359 support level into view.

The 14-day RSI at 33.18 suggests a USD/JPY fall through the 141 handle before entering oversold territory.

4-Hourly Chart

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

A USD/JPY break above the 142.177 resistance level would bring the 50-day EMA into play.

However, a fall through the 141 handle would give the bears a run at the 139.359 support level.

The 14-period 4-hour RSI at 33.23 suggests a USD/JPY fall below the 141 handle before entering oversold territory.