USD/JPY Forecast: Yen Finds Breathing Room Amidst Intervention Whispers

Highlights

• USD/JPY saw a 0.58% decline on Tuesday, with highs at 150.160 and lows reaching 147.273.
• Speculation hints at intervention, creating notable gains for the Yen amidst lingering uncertainty.
• A rise in US ADP numbers and the ISM Non-Manufacturing PMI could significantly influence the USD.

Tuesday Overview of USD/JPY Movements

On Tuesday, the USD/JPY declined by 0.58%. Reversing a 0.36% rise from Monday, the USD/JPY ended the day at 148.985. The USD/JPY rose to a high of 150.160 before falling to a low of 147.273.

Intervention Speculation Offers Yen Respite

Speculation about an intervention delivered a trend-bucking gain for the Yen on Tuesday. Despite the intervention speculation, the Bank of Japan’s (BoJ) stance on monetary policy will likely leave the Yen on the back foot.

Bank of Japan Governor Ueda recently reiterated the parameters for a shift away from negative rates. A pickup in wage growth and a bounce in consumption would raise the bets on a BoJ monetary policy shift away from ultra-loose.

On Friday, household spending must reflect a change in momentum to ease pressure on the Yen. Before the Friday numbers, an upward revision to service sector PMIs would offer Yen support.

According to prelim numbers, the au Jibun Bank Services PMI fell from 54.3 to 53.3. The services sector accounts for 70% of GDP. Weaker service sector activity will likely leave the Yen on the defensive.

US ADP Employment Change and ISM Non-Manufacturing in the Spotlight

Later today, US ADP nonfarm employment change and ISM Non-Manufacturing PMI numbers will be pivotal for the USD/JPY.

After the unexpected rise in US job openings, higher-than-forecasted ADP numbers will likely drive buyer appetite for the US dollar. Economists forecast the ADP to report a 160k increase in nonfarm employment vs. 177k in August.

Later in the US session, ISM Non-Manufacturing PMI numbers will also influence the USD/JPY. An unexpected pickup in service sector activity would support a more hawkish Fed rate path. The US services sector contributes more than 75% to the US economy.

Positive momentum across the services sector would support a tighter labor market and wage growth. An upward trend in wage growth will likely fuel consumption and demand-driven inflation, forcing the Fed to take a more hawkish rate path. A more hawkish rate path would impact disposable income and curb consumer spending on non-essential goods.

Economists forecast the ISM Non-Manufacturing PMI to fall from 54.5 to 53.6 in September.

Short-term Forecast

Monetary policy divergence remains firmly tilted in favor of the US dollar. Weaker US service sector activity and a slower pace in hiring may ease demand for the US dollar. However, a shift away from the higher-for-longer interest rate guidance will likely pressure the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals. Avoiding a drop below 149 would support a USD/JPY move to the 150.293 resistance level.

Better-than-forecasted ADP and ISM numbers would fuel buyer appetite for the US dollar. Speculation over Japanese government intervention in the FX markets may continue to cap the upside.

However, an unexpected slump in service sector activity will likely give the bears a run at the 148.405 support level.

The 14-day RSI at 60.54 supports a USD/JPY move to the 150.293 resistance level before reaching overbought territory.

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, reaffirming the bullish price signals. Avoiding a drop below the 50-day EMA would give the bulls a run at the 150.293 resistance level.

However, a break below the 50-day EMA would support a USD/JPY move to the 148.405 support level.

The 42.31 14-4 Hourly RSI signals a USD/JPY fall below the 148.405 support level before entering oversold territory.