USD/JPY Forecast: The US CPI Report and Fed Speeches in the Spotlight

Highlights

• The USD/JPY gained 0.16% on Monday, ending the session at 151.720.
• Intervention threats to bolster the Yen may linger ahead of the US CPI Report.
• On Tuesday, the US CPI Report and Fed speakers will dictate near-term USD/JPY trends.

Monday Overview of USD/JPY Movements

The USD/JPY rose by 0.16% on Monday. Following a 0.09% gain on Friday, the USD/JPY ended the session at 151.720. The USD/JPY rose to a high of 151.908 before falling to a low of 151.198.

Intervention Remains a Threat with the USD/JPY at the Door of 152

On Tuesday, the Japanese government may warn about interventions to bolster the Yen. Another move toward 152 could fuel expectations of an intervention. The ever-present threat could cap the USD/JPY upside at the Monday high of 151.907.

Notably, the Yen briefly sank from a session high of 151.907 to a low of 151.198 before recovering. However, the markets attributed the Monday moves to the expiration of options contracts, not the Japanese government.

The weaker Yen impacts the cost of living. Further weakness in the Yen could fuel inflationary pressures. A pickup in inflationary pressure would affect private consumption and the economy. In Q2 2023, private consumption accounted for 54.2% of the Japanese economy.

While intervention threats linger, Bank of Japan commentary also needs consideration. A more decisive outlook on monetary policy would influence the appetite for the Yen.

US CPI Report and Fed Speakers in Focus

On Tuesday, the US CPI Report will be the focal point. A hotter-than-expected US CPI Report could fuel bets on a December Fed rate hike. Economists forecast the US annual inflation rate to soften from 3.7% to 3.3%. However, economists predict core inflation to remain unchanged at 4.1%.

A more hawkish Fed rate path would increase borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and demand-driven inflationary pressures.

However, a more hawkish rate path may also reignite fears of a hard landing. US private consumption accounts for over 60% of the economy. Weaker private consumption would impact the economy.

With inflation in focus, investors must monitor Fed speeches. FOMC members Loretta Mester, Austan Goldsbee, and Michael Barr are on the calendar to speak. Reaction to the US CPI Report and forward guidance on interest rates warrant consideration.

Short-term Forecast

Near-term USD/JPY trends will hinge on the US CPI Report. A hotter-than-expected US CPI Report could fuel bets on a Fed rate hike and send the USD/JPY through 152. However, investors must consider threats to bolster the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY break above the 151.889 resistance level would give the bulls a run at 152.500.

On Tuesday, investors will focus on US inflation, Fed speeches, and the Japanese government.

Hotter-than-expected US inflation numbers and hawkish Fed comments could bring 152.500 into play.

However, a USD/JPY drop below 151 would give the bears a run at the 150.201 support level.

The 14-day RSI at 61.97 suggests a USD/JPY break above the 151.889 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A USD/JPY move through the 151.889 resistance level would give the bulls a run at 152.500.

However, a break below the 50-day EMA would give the bears a run at the 150.201 support level.

The 14-period 4-hour RSI at 64.43 indicates a USD/JPY move to 152 before entering overbought territory.