USD/JPY Forecast: Yen on Edge with BoJ’s Negative Rate Chatter and US Economic News

Highlights

• USD/JPY registered a 0.25% gain on Wednesday, rounding off to 147.454 after a previous rise of 0.35%.
• The Bank of Japan’s recent hints suggest a potential departure from long-held negative rates.
• US jobless claims and retail metrics are key indicators for the upcoming Thursday trading session.

Wednesday Overview

On Wednesday, the USD/JPY gained 0.25%. Following a 0.35% rise on Tuesday, the USD/JPY ended the day at 147.454. The USD/JPY fell to a low of 147.016 before striking a 147.746 high.

Industrial Production to Play Second Fiddle to BoJ Negative Rate Chatter

Finalized industrial production figures for July are unlikely to impact the USD/JPY. Recent Bank of Japan Governor Ueda comments have redirected attention to an unwavering and long-standing ultra-loose monetary policy stance.

Hints of a shift away from negative rates have fueled speculation that the BoJ is ready to make a move. However, inflation remains above target, suggesting the BoJ needs to maintain ultra-loose monetary policy for longer before considering a change.

Household spending and final GDP figures revealed a slump in private consumption. BoJ Governor Ueda and Board members would need to see a pickup in wage growth to fuel consumption and demand-driven inflation. Lackluster wage growth would limit Japanese private consumption and the BoJ’s options to move away from negative rates.

Nonetheless, investors and the Yen remain sensitive to BoJ references to negative rates.

US Retail Sales, Producer Prices, and Jobless Claims

US jobless claims and retail sales will set the stage for the Thursday session. Steady US labor market conditions and an upswing in retail sales would fuel demand-driven inflationary pressures.

Significantly, an upward trend in producer prices would signal a pickup in demand and inflationary buildup. While investors considered the CPI Report the final piece in the Fed jigsaw puzzle, today’s numbers could materially influence bets on Fed rate hikes.

Economists forecast retail sales to increase by a modest 0.2% and initial jobless claims to climb from 216k to 225k. Significantly, economists expect producer prices to rise by 0.4% versus 0.3% in July.

Numbers aligned or better than forecasts will test the theory of the Fed policy pause.

Short-term Forecast

Increasing BoJ talk of a shift from negative rates leaves the Yen set up for a breakout. However, better-than-expected US economic indicators could deliver one final Fed and dollar push before the Fed hits the brakes.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 146.649 support level. A USD/JPY break below the 146.649 support level would signal a USD/JPY move toward the 144.894 support level. If US economic indicators affirm easing bets on the Fed’s interest rate hikes, it would support a USD/JPY move toward 145.”

Avoiding the 146.649 support level would give the bulls a run at the 148.405 resistance level. However, a USD/JPY return to 148 could fan Japanese government warnings about interventions to support a weaker Yen.

The 59.72 14-Daily RSI shows the USD/JPY can retarget the 148.405 resistance level before hitting overbought territory.

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, sending bullish price signals. USD/JPY movement remains hinged 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 support a USD/JPY move toward the 148.405 resistance level.

The 56.07 14-4H RSI reading supports a USD/JPY move toward the 148.405 resistance level before entering overbought territory.