USD/JPY Forecast: Bank of Japan’s Impact and US Jobs Report Analysis

Highlights

• The USD/JPY tumbled by 2.18% on Thursday, ending the session at 144.092.
• Bank of Japan Governor Kazuo Ueda sank the USD/JPY during a speech on monetary policy.
• On Friday, the Japanese economy was in focus before the all-important US Jobs Report.

USD/JPY Movements on Thursday

The USD/JPY tumbled by 2.18% on Thursday. After a 0.11% gain on Wednesday, the USD/JPY ended the day at 144.092. The USD/JPY rose to a high of 147.310 before crashing to a low of 141.601.

Japanese Economy in the Spotlight

On Friday, household spending, wage growth, and finalized GDP numbers for Q3 were in focus. The numbers could impact bets on a Bank of Japan pivot from negative rates. Bank of Japan Governor Kazuo Ueda sent the USD/JPY crashing after floating possible interest rate moves to parliament.

A pickup in wage growth was the highlight of the numbers. Average cash earnings increased 1.5% year-over-year in October vs. 0.6% in September. The pickup could fuel consumer spending and demand-driven inflation, the missing piece of the jigsaw for the BoJ.

However, household spending declined by 0.1% in October after rising by 0.3% in September. A downward revision to private consumption in Q3 affected the GDP numbers. The Japanese economy contracted by 0.7% vs. a second estimate contraction of 0.5%.

Softer inflation numbers from Tokyo and weaker household spending and GDP numbers could delay a BoJ pivot from an ultra-loose policy. However, the better-than-expected wage growth numbers could support a more upbeat final quarter.

The USD/JPY responded to the numbers, dipping to a low of 143.933 before rising to a high of 144.319.

US Jobs Report and Michigan Consumer Sentiment in Focus

On Friday, the US Jobs Report and consumer sentiment will need consideration. Weaker wage growth and a higher unemployment rate could cement bets on a Q1 2024 Fed rate cut.

Weaker wage growth and a deteriorating economy would reduce disposable income and impact consumer sentiment. The net effect would be a pullback in consumer spending, easing demand-driven inflationary pressures. A softer inflation outlook would allow the Fed to take a less hawkish rate path.

However, consumer confidence also influences consumption. An improving consumer confidence backdrop could signal an upward trend in consumer spending. A pickup in consumer spending would fuel demand-driven inflation and ease bets in a Q1 2024 Fed rate cut.

On balance, the US Jobs Report will likely have a more lasting effect on the US dollar.

Economists forecast the unemployment rate to remain unchanged at 3.9%. Significantly, economists expect average hourly earnings to increase by 0.3% in November vs. 0.2% in October.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on Bank of Japan commentary and the US Jobs Report. A hawkish response to the wage growth figures from Japan and a weaker-than-expected US Jobs Report could send the USD/JPY toward 140.

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day EMA while holding above the 200-day, affirming bearish near-term but bullish longer-term price signals.

A USD/JPY break above the 144.713 resistance level would bring the 146.649 resistance level into play.

Bank of Japan commentary and the US Jobs Report are likely focal points.

However, a break below the 200-day EMA would give the bears a run at the 142.177 support level.

The 14-day RSI at 29.12 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 200-day EMA.

4-Hourly Chart

The USD/JPY remained below the 50-day and 200-day EMAs, affirming bearish near-term price signals.

A USD/JPY move through the 144.713 resistance level would bring the 146.649 resistance level into play.

However, a drop below the 143 handle could lead to a fall to the 142.177 support level.

The 14-period 4-hour RSI at 29.39 shows the USD/JPY in oversold territory. Buying pressure may intensify at the morning low of 143.806.