USD/JPY Forecast: Wage Growth, Household Spending, and the BoJ

Highlights

• The USD/JPY gained 0.24% on Monday, ending the session at 148.671.
• From Japan, wage growth and household spending figures warrant investor attention on Tuesday.
• Later in the session, the US economic calendar and Fed speakers also need consideration.

USD/JPY Movement on Monday

The USD/JPY gained 0.24% on Monday. Following a 1.30% rally on Friday, the USD/JPY ended the day at 148.671. The USD/JPY fell to a low of 148.265 before rising to a Monday session high of 148.894.

Wage Growth and Household Spending in Focus

From Japan, household spending and wage growth figures will garner investor interest on Tuesday.

Economists forecast household spending to fall by 2.1% year-over-year in December. In November, household spending declined by 2.9% year-over-year.

Significantly, economists forecast average cash earnings to increase by 1.3% year-over-year in December. In November, average cash earnings rose by 0.2% year-over-year. In November, overtime pay increased by 0.9% year-over-year.

The numbers are significant for the Bank of Japan and plans to exit negative rates. An increase in average cash earnings could fuel consumer spending and demand-driven inflationary pressures. The Bank of Japan needs wage growth and household spending to fuel demand-driven inflation before pivoting from negative rates.

Following the economic indicators for December, investors must also monitor any Bank of Japan reactions to the stats.

US Economic Calendar: Economic Optimism Numbers in Focus

On Tuesday, the US RCM/TIPP Economic Optimism Index will garner investor interest. Economists forecast the Index to increase from 44.7 to 45.2 for February.

Recent US economic indicators, including the US Jobs Report, signaled a robust US economy. A larger-than-expected rise in the RCM/TIPP Economic Optimism Index could drive buyer demand for the USD/JPY.

Economists consider the Index a leading indicator of consumer confidence and spending. An upward trend in economic optimism could signal a pickup in consumer spending. Higher consumer spending trends could fuel demand-driven inflation.

However, investors must also track FOMC member chatter. FOMC member Loretta Mester is on the calendar to speak. Hawkish chatter would align with falling bets on a March Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY hinge on wage growth numbers from Japan and central bank chatter. Recent economic indicators from Japan and the US tilted monetary policy divergence toward the US dollar. However, Bank of Japan board member support to pivot from negative rates could pressure the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY sat well above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY return to the 149 handle would support a move to the 150.201 resistance level.

On Tuesday, household spending and wage growth figures from Japan and the US economic calendar need consideration.

However, a break below the 148.405 support level would give the bears a run at the 146.649 support level and the 50-day EMA. Selling pressure could intensify at the 146.649 support level. The 50-day EMA is confluent with the 146.649 support level.

The 14-day RSI at 62.09 indicates a USD/JPY move to the 150.201 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY remained above the 50-day and 200-day EMAs, confirming bullish price trends.

A USD/JPY move to the 149 handle would give the bulls a run at the 150.201 resistance level.

However, a break below the 148.405 support level would bring the 50-day EMA into play.

The 14-period 4-hour RSI at 66.15 indicates a USD/JPY move to the 150.201 resistance level before entering overbought territory.