USD/JPY Forecast: Rate Speculations Stir Yen Volatility and Intervention Threats

Highlights

• The USD/JPY increased by 0.25% on Thursday, ending the session at 151.345.
• Fed Chair Powell surprised the markets, raising bets on a Fed rate hike.
• On Friday, Bank of Japan commentary, Fed speeches, and US consumer sentiment will be the focal points.

Thursday Overview of USD/JPY Movements

The USD/JPY increased by 0.25% on Thursday. Following a 0.44% gain on Wednesday, the USD/JPY ended the session at 151.345. The USD/JPY fell to a low of 150.768 before rising to a Thursday high of 151.387.

Bank of Japan Monetary Policy and Government Interventions

On Friday, investors must consider Japanese government warnings about intervening in the FX markets. A USD/JPY return to 151 raises the threat of a government intervention to bolster the Yen.

While the Japanese Government may issue warnings, the Bank of Japan continues to send mixed policy signals. On Thursday, Bank of Japan Governor Kazuo Ueda warned of serious challenges associated with exiting ultra-loose policy.

The BoJ Governor discussed the progress toward achieving the 2% inflation target through wage growth and demand. However, Governor Ueda was also quick to dispel any thoughts of an imminent shift in policy. Ueda said there was still some distance to cover before exiting negative rates and removing the Yield Curve Control (YCC) policy.

Considering the comments from Thursday, more decisive comments on monetary policy could impact the appetite for the Yen.

There are no economic indicators from Japan for investors to consider.

US Consumer Sentiment and the Fed in the Spotlight

On Friday, US consumer sentiment will be in focus. An unexpected pickup in consumer sentiment would signal a positive consumer spending outlook and drive demand for the US dollar. An upward trend in consumer spending could fuel demand-driven inflationary pressures, forcing a more hawkish Fed rate path.

A more hawkish Fed rate path would raise borrowing costs, reducing disposable income. A downward trend in disposable income could weigh on consumer spending and soften demand-driven inflation.

Economists forecast the Michigan Consumer Sentiment Index to fall from 63.8 to 63.7 in November. However, investors must also consider the sub-components, including the Expectations and Inflation Expectations numbers.

In the wake of the hawkish Fed Chair Powell speech, FOMC voting member Lorie Logan and non-voting member Raphael Bostic are on the calendar to speak. Hawkish comments could drive demand for the US dollar.

Short-term Forecast

Monetary policy divergence tilted toward the US dollar on Thursday. A hawkish Fed Chair Powell contrasted with a cautious BoJ Governor Ueda. Commitment to ultra-loose monetary policy could bring 152 into view. However, a breakout from 151 will hinge on US economic indicators and intervention chatter.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY return to 151.500 would support a move to the 151.889 resistance level.

Central bank speeches, intervention-related news, and US consumer sentiment will be the focal points.

A drop below the 151 handle would give the bears a run at the 150.201 support level.

The 14-day RSI at 60.31 suggests a USD/JPY run at the 151.889 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 USD/JPY return to 151.500 would support a break above the 151.889 resistance level.

However, a drop below 151 would give the bears a run at the 50-day EMA and the 150.201 support level.

The 14-period RSI on the 4-hour chart at 68.61 indicates a USD/JPY move to the 151.889 resistance level before entering overbought territory.