USD/JPY Price Insights: Hawkish Fed vs. BoJ’s Ultra-Loose Stance

Highlights

• The USD/JPY fell by 0.17% on Friday, ending the week at 149.554.
• Market risk sentiment and dovish Fed comments tested the buyer appetite for the greenback.
• Monetary policy divergence remains firmly tilted toward the US dollar.

Friday Overview of USD/JPY Movements

On Friday, the USD/JPY declined by 0.17%. Partially reversing a 0.43% gain from Thursday, the USD/JPY ended the day at 149.554. The USD/JPY rose to a high of 149.829 before falling to a low of 149.453.

Ultra-Loose vs. Hawkish Remains the Theme Near-Term

The Bank of Japan (BoJ) and negative rates remain a headwind for the Japanese Yen. The ultra-loose policy continues to drive selling pressure, with recent BoJ speeches suggesting the status quo in the near term.

Wage growth remains the focal point for the Bank of Japan. Recent wage growth figures gave the BoJ no reason to signal a move away from negative interest rates. Overall wage income of employees in Japan rose by 1.1% in August, following a 1.1% rise in July. Japan’s annual inflation rate is 3.2%, meaning consumer prices are rising more quickly than wages. The consumer price inflation – wage growth dynamic impacts consumer spending.

A narrowing of the gap would support consumer spending and a move away from negative rates.

There are no economic indicators from Japan to consider on Monday. However, BoJ commentary and updates on the Middle East conflict need consideration. The threat of other nations joining the conflict would fuel demand for the Japanese Yen.

FOMC Member Speeches and the US Manufacturing Sector in Focus

The New York Empire State Manufacturing Index will garner investor interest on Monday. A larger-than-expected slide in the Index may refuel fears of a hard landing. Economists predict the NY Empire State Manufacturing Index to fall from 1.9 to -7.0 in October.

However, the manufacturing sector accounts for less than 25% of the US economy, limiting the influence on Fed policy decisions.

Beyond the numbers, FOMC member commentary will warrant consideration after the recent US CPI Report. Voting member Patrick Harker is on the economic calendar to speak on Monday. On Friday, Harker favored leaving interest rates unchanged. A move to a more hawkish outlook would force a market reaction.

Short-term Forecast

Monetary policy remains tilted toward the US dollar, supporting a USD/JPY move toward 151. However, the Middle East conflict and the lingering threat of Yen interventions continue to cushion the downside.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY return to 150 would support a break above the 150.293 resistance level and a move toward 151.

Better-than-expected US manufacturing sector data and hawkish Fed comments would drive buyer appetite for the US dollar.

However, a slump in US manufacturing sector activity and an escalation in the Middle East conflict would weigh on the USD/JPY. A break below the 148.405 support level would give the bears a run at the 50-day EMA.

The 14-day RSI at 59.05 indicates a USD/JPY break above the 150.293 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY hovers above the 50-day and 200-day EMAs, reaffirming bullish price signals. A return to 150 would support a breakout from the 150.293 resistance level to target 151.

However, a fall through the 50-day EMA would bring the 148.405 support level into play.

The 56.37 14-4 Hourly RSI indicates a USD/JPY break above the 150.293 resistance level before entering overbought territory.