USD/JPY Forecast: Will Rising Household Spending Bolster the Japanese Yen?

Highlights

• USD/JPY rose by 0.15% Monday, riding on Friday’s 0.49% upswing, setting the stage for a heated week.
• Investors, eyes on Japan’s potent data, foresee the Yen’s fortification; yet the Fed’s tone might be pivotal.
• Amidst the backdrop of predicted US factory order declines, the Fed’s stance on services remains crucial.

Monday Overview

The USD/JPY gained 0.15% on Monday. Following a 0.49% rise on Friday, the USD/JPY ended the day at 146.466. In a range-bound morning, the USD/JPY slipped to a low of 146.020 before rising to a high of 146.497.

Household Spending and Services PMI to Influence Bank of Japan Policy Guidance

July household spending starts the session. Bank of Japan Governor Ueda highlighted the need for wage growth and demand to adjust ultra-loose policy. Increased spending might lead to a less dovish BoJ stance. Economists predict a 0.7% rise in spending.

Consider the finalized service sector PMI figures. An upward revision indicates increased demand. Wage growth and demand would meet BoJ requirements. Preliminary data showed the services PMI rose from 53.8 to 54.3 in August.

FOMC Members Likely to Brush Aside US Factory Orders

Economists predict a 2.5% drop in factory orders, but the Fed may overlook this. The services sector comprises over 70% of the US economy, holding more weight than factory orders and manufacturing sector activity.

Investors should watch Fed commentary beyond the numbers. The markets expect the Fed hit the brakes, so hawkish remarks would be unexpected.

Immediate Forecast: Household Spending and Services PMI to Test Ultra-Loose

Investors anticipate a more cautious Fed, while robust Japanese data could lead the Bank of Japan to adopt hawkish stances. Increased household spending might strengthen the Yen, but hawkish remarks from the Fed remain a potential surprise.

USD/JPY Price Action

Daily Chart

The USD/JPY, despite a positive session, remained below the $146.649 resistance. Poor household spending figures from Japan could push it past this resistance towards 147. But dovish Fed comments and increased consumer demand in Japan might pull it to the 144.894 support level and the 50-day EMA.

The 60.64 14-Daily RSI reading signals more upside for the USD/JPY before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 50-day EMA. A hold above the 50-day EMA would support a run at the 146.649 resistance band and 147. However, household spending numbers from Japan must disappoint to support a breakout.

Later in the day, Fed commentary must be hawkish for the USD/JPY to avoid the 50-day EMA. A fall through the 50-day EMA would bring 145 and the 144.894 support level into view.

The 57.60 14-4H RSI reading gives the USD/JPY room to run before hitting oversold territory.