The Bank of Japan (BoJ) is expected to shift away from its ultra-loose monetary policy, but uncertainty remains regarding the timing of this move. Currently, the silence from the BoJ suggests that monetary policy will remain unchanged in January and possibly through the first quarter of 2024. A recent Reuters Poll revealed that 80% of economists anticipate the BoJ’s exit from negative rates in 2024, while only 20% predict a January pivot. This division within the market indicates the difficulty in accurately predicting the BoJ’s actions.
This week, the spotlight will be on the US economy, with important data releases such as Q3 GDP, Philly Fed Manufacturing, and jobless claims. While Q3 GDP numbers are not expected to deviate significantly from preliminary figures, the manufacturing data and jobless claims could have a more substantial impact. Although the US manufacturing sector only accounts for less than 30% of the overall economy, a decline in its activity could trigger concerns of a potential hard landing. Furthermore, jobless claims will influence market expectations regarding a Q1 2024 rate cut by the Federal Reserve. The current tight labor market conditions support wage growth and disposable income, which, in turn, could fuel consumer spending and demand-driven inflation. To counteract excessive consumer spending, the Federal Reserve may need to adjust its interest rate trajectory.
The outlook for the USD/JPY currency pair in the near term remains dependent on the Bank of Japan’s actions and the release of the US Personal Consumption Expenditures Report on Friday. Investors anticipate the BoJ to pivot from negative rates in 2024. However, a strong US economy could dampen expectations of a Q1 2024 rate cut by the Federal Reserve and drive demand for the USD/JPY pair. Currently, the USD/JPY is trading below both the 50-day and 200-day EMAs, leading to bearish price signals. If the USD/JPY breaks above the 200-day EMA, it could signal a move towards the 144.713 resistance level. On the other hand, a dip below the 143 handle would bring the 142.177 support level into play. Additionally, the 14-day RSI at 38.09 suggests a potential fall to the 142.177 support level before the currency pair enters oversold territory.
As the Bank of Japan continues to deliberate its monetary policy course, market participants eagerly await clear guidance on the bank’s goals and timeline for a shift away from negative rates. The potential impact of the US economic data, particularly jobless claims and manufacturing data, is also being closely monitored. In the currency markets, the USD/JPY pair is currently displaying bearish signals, but this could change depending on the Bank of Japan’s actions and the overall strength of the US economy. Investors should remain cautious and closely watch for any policy changes or economic developments that could significantly impact the USD/JPY exchange rate.