USD/JPY Forecast: US Inflation to Dictate Trends After the BoJ Policy Decision

Highlights

• The USD/JPY slid by 1.01% on Thursday, ending the session at 142.108.
• Early in the Friday session, inflation numbers from Japan garnered investor interest.
• US inflation will be the focal point later in the Friday session.

USD/JPY Movements on Thursday

The USD/JPY slid by 1.01%. Following a 0.19% loss on Thursday, the USD/JPY ended the Thursday session at 142.108. The USD/JPY rose to a high of 143.569 before falling to a low of 142.043.

Japanese Inflation Softens in November

On Friday, inflation figures from Japan drew investor interest. The Bank of Japan fueled monetary policy uncertainty by avoiding references to a pivot from negative rates. On Tuesday, the BoJ left monetary policy unchanged. Only 20% of economists from a Reuters Poll predicted a January 2024 exit from negative rates.

The core inflation rate softened from 2.9% to 2.5% in November, with the annual inflation rate falling from 3.3% to 2.8%. The inflation numbers from November could ease pressure on the BoJ to pivot from negative rates in Q1 2024.

US Inflation in the Spotlight

On Friday, US personal spending/income and inflation will be in focus. Sticky inflation and upward trends in income and spending could ease bets on a Q1 2024 Fed rate cut. Economists forecast the Core Producer Price Index to rise by 3.4% year-over-year in November vs. 3.5% in October. Significantly, economists expect uptrends in personal income and spending.

Upward trends in personal income/spending and sticky inflation could force the Fed to delay the timing of rate cuts. Upticks in disposable income and consumer spending would fuel demand-driven inflation. An elevated interest rate environment would curb consumer spending and dampen inflationary pressures.

Other stats include durable goods orders, new home sales, and consumer sentiment numbers. However, these may play second fiddle to the personal outlays report.

Beyond the numbers, Fed reaction to the personal outlay report needs monitoring.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the US inflation numbers. Sticky US inflation could reduce bets on a Q1 2024 Fed rate cut, tilting monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 142.177 resistance level would support a move to the 200-day EMA. A breakout from the 200-day EMA would give the bulls a run at the 144.713 resistance level.

US inflation and personal income/spending will be the focal points.

However, a fall below the 141.500 handle would bring the 139.359 support level into play.

The 14-day RSI at 34.00 suggests a USD/JPY drop below the 141.500 handle before entering oversold territory.

4-Hourly Chart

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

A USD/JPY move through the 142.177 resistance level would support a move to the 50-day EMA. A break above the 50-day EMA would bring the 144.713 resistance level into play.

However, a drop below the 141.500 handle would give the bears a run at the 139.359 support level.

The 14-period 4-hour RSI at 37.03 indicates a USD/JPY fall to the 141.500 handle before entering oversold territory.