USD/JPY Forecast: Will Intervention Threats Keep It Below 150?

Highlights

• The USD/JPY gained 0.14% on Tuesday, ending the session at 149.908.
• US housing sector numbers are in focus on Wednesday, ahead of inflation figures on Friday.
• Intervention threats will likely continue to peg the USD/JPY back from a pre-inflation breakout.

Tuesday Overview of USD/JPY Movements

On Tuesday, the USD/JPY gained 0.14%. Following a 0.08% loss from Monday, the USD/JPY ended the session at 149.908. The USD/JPY fell to a low of 149.320 before rising to a Tuesday high of 149.929.

Economic Woes, Negative Rates, and Intervention

Prelim private sector PMI numbers for Japan raised early recession warning signals for the Bank of Japan. The Services PMI fell from 53.8 to 51.1, expanding at the weakest pace in 2023. Significantly, the services sector accounts for over 70% of the Japanese economy and the labor market.

Slower service sector growth may force firms to cut costs to compete for new business. Staffing levels and wages would likely be the target areas to maintain profit margins.

A weaker labor market and wage growth outlook could leave the Bank of Japan in its ultra-loose monetary policy stance. The Bank of Japan has been explicit about needing wage growth to fuel inflation to justify a move away from negative rates.

The ultra-loose monetary policy stance leaves the Yen on the defensive versus the US dollar. However, the ever-present threat of a Yen intervention continues to leave the USD/JPY short of 150.

With no economic indicators from Japan to consider on Wednesday, speculation about a shift in monetary policy guidance would move the dial.

US Housing Sector Unlikely to Shake Fed Rate Hike Expectations

Later today, the US housing market will be in the spotlight. Economists forecast new home sales to slide by 11.0% in September (Aug: -8.7%). A tight supply environment may prevent a US housing sector collapse. However, an elevated mortgage rate environment affects disposable income. Higher mortgage rates and a downward trend in disposable income may force consumers to curb spending.

The US construction sector contributes less than 10% directly to the US economy. However, US private consumption contributes over 65% to the US economy, exposing the US economy to the housing sector and mortgage rates.

In October, the housing sector sent a letter to Fed Chair Powell. The letter stated homebuyers were paying an additional $245 per month ($300,000 homes) on ‘uncertainty-induced mortgage-to-Treasury spreads, adding,

“Further rate increases and a persistently widespread pose broader risks to economic growth.”

While the housing sector calls on the Fed to leave rates unchanged, inflation will remain the focal point.

Short-term Forecast

Macroeconomic and monetary policy divergence continues to favor USD/JPY gains. However, the threat of an intervention to bolster the Yen continues to peg the pair back from a 150 breakout. On Friday, US inflation numbers could break the deadlock.

USD/JPY Price Action

Daily Chart

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

Bank of Japan monetary policy chatter and the US economic outlook remain focal points. Weak US housing sector numbers could pressure the USD/JPY later today.

A USD/JPY drop below 149 would bring the 148.405 support level and the 50-day EMA into play.

The 14-day RSI at 60.15 suggests a USD/JPY move to the 150.201 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 breakout from the 150.201 resistance level would bring 151 into play.

However, a break below the 50-day EMA would support a move to the 200-day EMA and the 148.405 support level.

The 54.48 14-4 Hourly RSI suggests a USD/JPY break above the 150.201 resistance level before entering overbought territory.