FX.co ★ USD/JPY: Analysis and Forecast

The USD/JPY pair pulls back earlier on Thursday after reaching its highest level since August, trading with a moderately negative bias.

The intraday pullback lacks a specific fundamental driver, and amid uncertainty regarding the Bank of Japan's rate hike plans, it is likely to remain limited. According to data released on Tuesday, Japan's real wages for August declined after two months of growth. Household spending also decreased, raising doubts about the strength of private consumption and the durability of the economic recovery.

Moreover, the Bank of Japan's quarterly survey, released today, revealed that the proportion of Japanese households expecting price increases within a year was 85.6% in September, down from 87.5% the previous month. Additionally, another report from the Bank of Japan showed that the CGPI – the Corporate Goods Price Index, which measures the price that companies charge each other for goods and services – unexpectedly increased to 2.8% year-over-year in September. At the same time, reduced import costs suggest that price pressure from raw material costs is easing. All these factors, along with pointed remarks from Japan's Prime Minister Shigeru Ishiba on monetary policy, have reduced expectations for further rate hikes. Consequently, this is generally expected to limit the yen's appreciation.

The U.S. dollar is moving toward a new eight-week high as traders fully assess the likelihood of a rate cut by the Federal Reserve in November. These expectations were reinforced by the minutes of the FOMC's September meeting, released on Wednesday, which indicated that in the face of high inflation, sustained economic growth, and low unemployment, some members would prefer only a 25 basis point rate cut. This continues to support the U.S. dollar, providing a tailwind for the USD/JPY pair.

Today, before opening new directional positions, traders may want to wait for the release of the latest U.S. inflation data. The Core CPI – Consumer Price Index – will be released later during the North American session. This will be followed by the U.S. Producer Price Index (PPI) on Friday. These data could play a key role in shaping market expectations regarding the direction and size of the Fed's next rate decision, potentially boosting demand for the U.S. dollar and helping to determine the short-term trajectory for the USD/JPY pair.

For confirmation that the multi-week uptrend has ended, strong follow-up selling is needed.

Last week's breakout above the 50-day simple moving average (SMA) favors the bulls. Moreover, oscillators on the daily chart remain far from the overbought zone and are gaining positive momentum, indicating that the most favorable direction for the USD/JPY pair is to the upside.

Therefore, any significant dip can be viewed as a buying opportunity near the 148.70–148.65 area. This zone should help limit the pair's decline to the key psychological level of 148.00. A break below this level could trigger technical selling, pulling spot prices to intermediate support at 147.35, with further declines toward the next round levels of 147.00 and 146.50.

Conversely, a push beyond the Asian session high of 149.54 could enable the USD/JPY pair to reclaim the psychological level of 150.00, and climb higher.