The USD/JPY experienced a 0.31% decline on Thursday, following a 0.41% loss the day before. The session ended with the USD/JPY at 141.368. This decline came after reaching a high of 142.822 and dropping to a low of 140.249. Key economic indicators from Japan have raised speculations on a potential Bank of Japan pivot from negative interest rates in the first half of 2024. The significant increase in retail sales has fueled expectations of demand-driven inflationary pressures. Should consumer spending and wage growth continue to improve, this could provide a solid foundation for the Bank of Japan to make a shift from negative rates.
The Bank of Japan Governor, Kazuo Ueda, has hinted that the central bank could wait until the completion of the Spring wage negotiations to consider the pivot from negative rates. Previously, he mentioned that a shift could happen before wage growth materialized. Therefore, the Governor’s statements have left room for interpretation and uncertainty regarding the timing of a potential pivot. If the Bank of Japan provides clearer forward guidance, it could accelerate the decline of the USD/JPY below the 140 level.
US Economic Calendar Impact
The US Chicago PMI, which measures the economic activity in the Chicago region, will be closely watched by investors on Friday. If the Chicago PMI experiences a larger-than-expected fall from 55.8 to 51.0 in December, it could increase the likelihood of a Federal Reserve rate cut in the first quarter of 2024. Chicago is the third-largest metropolitan area in the US by gross metropolitan product, making this indicator significant for investors. A drop below 50 in the Chicago PMI could unsettle investors and challenge expectations of a soft landing for the economy. Additionally, it’s important to consider any remarks or statements made by the Federal Reserve regarding recent inflation numbers and interest rates, as they can heavily influence market sentiment.
The near-term trends for the USD/JPY are primarily influenced by the Bank of Japan’s forward guidance. Increasing support for a pivot from negative rates would further favor the Yen, impacting the monetary policy divergence. At present, the USD/JPY remains below the 50-day and 200-day Exponential Moving Averages (EMAs), reinforcing bearish price signals. However, if the USD/JPY manages to break above the resistance level of 142.177, it could lead to a move towards the 200-day EMA. In contrast, a drop below the support level of 141 would provide an opportunity for bears to test the 139.359 level. Looking at the 14-day Relative Strength Index (RSI) at 32.96, it indicates a possible drop below the 141 handle before entering oversold territory.
The USD/JPY saw a decline due to economic indicators from Japan raising expectations of a potential Bank of Japan pivot from negative rates. The market remains uncertain regarding the timing, but improvements in consumer spending and wage growth could provide the foundation for such a shift. The US economic calendar, particularly the Chicago PMI, will be closely watched by investors. Furthermore, the Bank of Japan’s forward guidance and the technical analysis of the USD/JPY will continue to impact market sentiment. As we move forward, it is essential to pay attention to any significant developments and remarks from key stakeholders to understand how it may influence the USD/JPY and overall market conditions.
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