USD/JPY Forecast: Yen’s Position Amid BoJ Comments and US Inflation Projections

Highlights

• USD/JPY rebounds from Monday’s slide, closing Tuesday at 147.082 with a 0.35% gain.
• Bank of Japan’s monetary stances continue as the key pivot for investor sentiments.
• Amidst speculations, the US CPI Report holds investor gaze; rate decisions loom.

Tuesday Overview

The USD/JPY gained 0.35% on Tuesday. Partially reversing a 0.81% slide from Monday, the USD/JPY ended the day at 147.082. The USD/JPY fell to a low of 146.434 before rising to a high of 147.233.

Manufacturing Sector Activity in Focus Amidst China Woes

The BSI Large Manufacturing Conditions Index is in focus this morning. While the manufacturing sector accounts for only 20% of the economy, weak numbers would signal a deteriorating macroeconomic environment and weak demand for Japanese goods.

Economists forecast the BSI Large Manufacturing Index to rise by 0.2 points in the third quarter. The index declined by 0.4 points in the second quarter.

While investors remain sensitive to economic indicators, Bank of Japan monetary policy forward guidance remains the key driver. After confusion over the intended meaning of BoJ Governor Ueda’s comments on inflation and negative rates, further commentary is likely.

US CPI Report in the Spotlight

The US CPI Report is in focus today. Investors are betting on the Fed leaving rates unchanged this month. However, hotter-than-expected core inflation could refuel bets on one final Fed rate hike before hitting the brakes.

The US Federal Reserve has a mandate to maintain inflation at around 2%. Elevated inflation requires monetary policy tightening to curb spending and ease demand-driven inflation. Sticky core inflation could force investors to reevaluate Fed interest rate expectations.

Economists forecast the US inflation rate to accelerate from 3.2% to 3.6%. However, economists project the core inflation rate to soften from 4.7% to 4.3%.

Short-term Forecast

The US CPI Report and Bank of Japan forward guidance leave the USD/JPY in a precarious position. Cooler-than-expected US inflation figures and hawkish BoJ comments would bring sub-145 into view.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 146.649 support level. A break below the 146.649 support level would bring sub-146 and the 144.894 support level into play. However, the US CPI Report should signal an end to the Fed interest rate hike cycle and support a USD/JPY move toward 145.

A hold above the 146.649 support level would give the bulls a run at the 148.405 resistance level. However, a USD/JPY return to 148 would likely force the Japanese government to issue more warnings about interventions to support the Yen.

The 58.72 14-Daily RSI indicates the USD/JPY can retarget 148 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 hinges on BoJ commentary and the US CPI Report. A break below the 50-day EMA and 146.649 support level would give the bears a run at sub-146.

However, a hold above the 50-day EMA would support a USD/JPY move toward the 148.405 resistance level.

The 53.22 14-4H RSI reading signals a USD/JPY move through 148 before entering overbought territory.