USD/JPY Fundamental Daily Forecast – Rangebound as Investors Weigh Fed Rate Hikes Against Possible Recession

James Hyerczyk
Updated: Dec 8, 2022, 08:41 UTC

USD/JPY buyers are being influenced by the prospect of more Fed rate hikes. Sellers are being driven by the growing possibility of a U.S. recession.


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The Dollar/Yen is trading flat early Thursday after posting a dramatic reversal top the previous session. The inability to follow-through to the downside suggests investor indecision and impending volatility.

Driving the price action is both bullish and bearish catalysts. Influencing buyers is the prospect of more Fed rate hikes. Driving sellers is the growing possibility of a U.S. recession.

Meanwhile, traders are just treading water ahead of next week’s Federal Reserve policy meeting. Hopefully the Fed will provide some direction.

At 06:58 GMT, the USD/JPY is trading 136.073, up 0.105 or +0.08%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $68.38, up $0.22 or +0.32%.

Recent Rally Fueled by Higher Fed Rate Hike Expectations

After a steep sell-off, culminated by a two-day plunge last week in reaction to less-hawkish comments from Federal Reserve Chairman Jerome Powell, the Dollar/Yen bounced back this week after recent economic data painted a mixed picture of the U.S. economy.

The rally was fueled by strong labor market, services and factory data which prompted some investors to believe that interest rates will need to stay elevated for longer as the Fed battles persistently high inflation.

However, the buying came to a halt on Wednesday as investors booked profits on fears that rising interest rates would put the U.S. economy into recession.

Trades Looking for Clarity

The USD/JPY could become rangebound over the next several days as investors seek clarity ahead of the Fed’s meeting next week. Jobless claims data comes out Thursday, followed by November’s producer price index and preliminary consumer sentiment data for December on Friday.

Ahead of the Fed’s two-day meeting on Dec. 13-14, traders will get the opportunity to react to a report on U.S. consumer inflation (CPI).

Japan Current Account Turns Negative, while GDP Falls Less-than-Expected

Japan posted a current account deficit of 64.1 billion Yen ($470 million) in October, its first red ink in nine months, as the Yen’s recent weakness and rising oil prices inflated import costs, the Finance Ministry said Thursday.

In other news, Japan’s economy, the world’s third-largest, shrank less than initially estimated in the third quarter, bolstering a view that it is slowly recovering from COVID-19 doldrums even as major export markets show further signs of weakening.

Short-Term Outlook

Driving the price action on Thursday is likely to be the direction of U.S. Treasury yields. The movement in yields could be influenced by the U.S. Weekly Unemployment Claims report, due to be released a 13:30 GMT.

Traders are expecting the weekly jobless claims data to show 230K claims, up from 225K. Despite the expected rise, the figure shouldn’t be enough to indicate the labor market is weakening.

A major miss to the upside will be bearish for the USD/JPY.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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