USD/JPY Forecast: US GDP Data May Impact Fed Rate Hike Bets Amidst Intervention Talk

Highlights

• The USD/JPY gained 0.19% on Wednesday, ending the session at 150.193.
• USD/JPY return to 150 leaves the Yen in intervention territory.
• US GDP figures could fuel Fed rate hike bets and Yen intervention chatter.

Wednesday Overview of USD/JPY Movements

On Wednesday, the USD/JPY rose by 0.19%. Following a 0.14% gain on Tuesday, the USD/JPY ended the session at 150.193. The USD/JPY fell to a low of 149.793 before rising to a Wednesday high of 150.318.

Intervention Territory: Government Eyes Yen Weakness

On Wednesday, the USD/JPY broke through the 150 handle for the first time since October 3. The threat of an intervention to bolster the Yen had left the USD/JPY in a tight range before the Wednesday session.

However, a rebound in 10-year US Treasury yields drove buyer appetite for the USD/JPY. The USD/JPY return to 150 has not gone unnoticed. On Thursday morning, Japan’s finance minister Suzuki reportedly said authorities were monitoring Yen trends after the return to 150.

Despite the threat, the USD/JPY held onto the 150 handle this morning. More Yen weakness will hinge on where the markets expect the BoJ to intervene.

Beyond the threat of an intervention, the Bank of Japan (BoJ) and negative rates remain debated. Sticky Tokyo inflation figures on Friday could fuel bets on a BoJ move away from negative interest rates. The BoJ has articulated the need for wage growth and demand-driven inflationary pressures.

However, the BoJ could run out of time, with the markets expecting an upward revision to inflation forecasts. The intervention threat and speculation about negative rates are tailwinds for the Yen.

US GDP: A Hot US Economy and Sticky Inflation

On Thursday, US GDP figures for the third quarter will impact the appetite for the US dollar. Economists forecast the US economy to expand by 4.2% in the third quarter vs. 2.1% in Q2.

A hot US economy will likely leave a December Fed rate hike on the table before inflation numbers on Friday. Recent economic indicators, including the US Services PMI, suggest a soft landing, offering the Fed scope to lift rates higher.

Higher interest rates impact borrowing costs and disposable income, forcing consumers to curb spending. A downward trend in consumption would cool the economy and ease demand-driven inflationary pressures. US consumption accounts for over 65% of the US economy.

Other US economic indicators include core durable goods orders and jobless claims. A spike in jobless claims and a slide in core durable goods orders would deliver pre-inflation Fed policy uncertainty.

Short-term Forecast

USD/JPY trends hinge on inflation numbers from Japan and the US. Softer US inflation and sticky inflation numbers from Japan would drive demand for the Yen. The markets are betting on sticky inflation to force a BoJ move away from negative interest rates.

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 the 150.201 resistance level would give the bulls a run at the 151.889 resistance level.

Hotter-than-expected US GDP numbers and steady US jobless claims would drive buyer demand for the US dollar.

However, a USD/JPY fall below 149.500 would support a move toward the 148.405 support level. A BoJ intervention would bring sub-149 into play.

The 14-day RSI at 61.81 indicates a USD/JPY move through the 150.201 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY hovers above the 50-day and 200-day EMAs, reaffirming bullish price signals. A break above the 150.201 resistance level would support a move to the 151.889 resistance level.

However, a fall through the 50-day EMA would bring the 200-day EMA and the 148.405 support level into view.

The 60.26 14-4 Hourly RSI indicates a USD/JPY return to 151 before entering overbought territory.