USD/JPY Forecast: Yen Holds Breath Amid Chinese Economic News and US Consumer Views

Highlights

• USD/JPY rises: The Thursday trading session witnessed a marginal gain of 0.01%, capping off at 147.462.
• BoJ and Negative Rates: Despite open discussions, conditions to move away from negative rates remain unmet.
• The China Ripple Effect: Regional economies await China’s next move as businesses prepare for unforeseen challenges.

Thursday Overview

The USD/JPY gained 0.01% on Thursday. Following a 0.25% rise on Wednesday, the USD/JPY ended the session at 147.462. A mixed session saw the USD/JPY rise to a high of 147.564 before falling to a low of 147.016.

The Bank of Japan and the Chinese Economy in the Spotlight

Market bets on a Bank of Japan shift from ultra-loose monetary policy have eased in recent sessions. Disappointing machinery orders followed an unexpected slump in household spending and downward revisions to Q2 GDP numbers.

Significantly, the BoJ has openly discussed the conditions for moving away from negative rates. However, these conditions remain a discussion point. Inflation is currently overshooting the 2% target and will likely continue overshooting for some time.

With the BoJ considering its options, economic indicators from China remain a focal point. Chinese economic woes have ripple effects across the region. Weak economic indicators from China would drive buyer appetite for the USD/JPY as a safe haven trade.

Economists forecast modest improvements in industrial trade and retail sales figures from China. However, the predictions are far from impressive, and fixed asset investment will likely weaken further, reflecting business sentiment toward the economic outlook.

Businesses will curb investment in uncertain economic times to protect reserves for better days.

US Consumer Sentiment in Focus

Preliminary Michigan Consumer Sentiment figures will draw interest later today. A sharp pickup in consumer sentiment would signal optimism toward the economic outlook and fuel spending and demand-driven inflation.

In a tight labor market, a favorable outlook on consumer spending could force the Fed to rethink plans to hit the brakes. Higher interest rates would impact labor market conditions and disposable incomes. In response, consumers would tighten their purse strings and cut back on non-essential spending, easing demand-driven inflationary pressures.

Economists forecast the Michigan Consumer Sentiment Index to fall from 69.5 to 69.1. Investors should consider the sub-components, including consumer inflation and employment expectations.

Short-term Forecast

Mixed signals from the Bank of Japan and a likely extended period of negative rates leave the dollar in the driving seat. However, signs of a US hard landing could change the narrative and support a Japanese Yen rebound.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 146.649 support level. A USD/JPY move to 148 would bring the 148.405 resistance level into view. However, a break below the 146.649 support level would give the bears a run at the 144.894 support level.

While upbeat economic indicators from China should support riskier assets, US consumer sentiment could deliver a USD/JPY breakout. However, a USD/JPY return to 148 could fan Japanese government warnings about interventions to support a weaker Yen.

The 59.99 14-Daily RSI indicates the USD/JPY can move to the 148.405 resistance level before hitting overbought territory.

4-Hourly Chart

The USD/JPY hovers above the 50-day and 200-day EMAs, sending bullish price signals. USD/JPY movement depends on BoJ commentary and US economic indicators. A break below the 50-day EMA and 146.649 support level would give the bears a run at the 200-day EMA.

However, avoiding the 50-day EMA would bring the 148.405 resistance level into play.

The 55.60 14-4 Hourly RSI reading signals a USD/JPY move to the 148.405 resistance level before entering overbought territory.