USD/JPY Forecast: US Consumer Confidence and Fed Interest Rate Implications

Highlights

• The USD/JPY rallied 0.75% on Tuesday, ending the session at 143.827.
• On Tuesday, the Bank of Japan left interest rates in negative territory, sinking the Japanese Yen.
• Trade data from Japan and US consumer confidence will draw investor interest on Wednesday.

USD/JPY Movements on Tuesday

The USD/JPY rallied 0.75% on Tuesday. Following a 0.44% gain on Monday, the USD/JPY ended the day at 143.827. The USD/JPY fell to a low of 142.245 before climbing to a Tuesday high of 144.954.

Trade Data in the Spotlight Amid Bank of Japan Policy Uncertainty

On Wednesday, trade data from Japan will garner investor interest. An improving macroeconomic environment could give the Bank of Japan a better footing to pivot from negative rates. The Bank of Japan left rates in negative territory on Tuesday and avoided the subject of negative rates in the Policy Statement.

Economists forecast the trade deficit to widen from ¥662.5 billion to ¥962.4 billion in November. While the headline figure will influence, investors must consider import and export trends and trade terms with key partners. In October, exports to China fell sharply, while exports to the US and Europe increased.

Beyond the numbers, Bank of Japan commentary needs monitoring. Comments relating to a Bank of Japan move away from ultra-loose monetary policy could move the dial.

US Consumer Confidence and the Fed in the Spotlight

On Wednesday, US consumer confidence figures for December warrant investor attention. A larger-than-expected increase in the CB Consumer Confidence Index could drive demand for the US dollar.

Improving consumer confidence could signal a positive consumer spending outlook. A pickup in consumer spending would fuel demand-driven inflation and influence the Fed rate path. A more hawkish Fed rate path affects borrowing costs and reduces disposable income. Downward trends in disposable income could impact consumer spending and dampen demand-driven inflation.

Economists forecast the CB Consumer Confidence Index to increase from 102.0 to 104.0 in December.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on Japanese and US inflation numbers, out on Friday. The markets expect a BoJ pivot from negative rates in 2024. Softer US inflation would tilt monetary policy divergence more toward the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 200-day EMA while sitting below the 50-day EMA, sending bullish long-term but bearish nearer-term price signals.

A USD/JPY break above the 144.713 resistance level would support a move toward the 146.649 resistance level.

On Wednesday, Bank of Japan commentary, Japanese trade data, and US consumer confidence could dictate buyer demand.

However, a fall through the 200-day EMA would give the bears a run at the $142.177 support level.

The 14-day RSI at 39.68 indicates a USD/JPY drop to the 142.177 support level before entering oversold territory.

4-Hourly Chart

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

A USD/JPY move through the 50-day EMA would bring the 144.713 resistance level into play.

However, a drop below the 143 handle would give the bears a run at the 142.177 support level.

The 14-period 4-hour RSI at 55.41 indicates a USD/JPY return to the 145 handle before entering overbought territory.