USD/JPY forecast ahead of Warsh Jackson Hole Speech as BoJ official hints at hikes

The USD/JPY exchange rate wavered today, August 27, as traders waited for the upcoming Kevin Warsh statement at the Jackson Hole Symposium in Wyoming. It also wavered after the US published the latest PCE and GDP numbers. It was trading at 159.32, up by 2.68% from its lowest level this month.

Kevin Warsh statement at the Jackson Hole Symposium

The USD/JPY pair wavered after the US released the latest inflation and GDP numbers. A report showed that the personal consumption expenditure (PCE) rose 3.7% in the 12 months through July, unchanged from June. This figure was much higher than the average estimate of economics of 3.6%. The month-over-month figure of 0.2% was also higher than expected.

These numbers mean that inflation continues to remain above the 2% target, a situation that may continue as gasoline and diesel prices rises. The average gasoline price in the US is stuck above $4 a gallon, while diesel is slowly nearing the all-time high. This is happening even as Brent and West Texas Intermediate (WTI) benchmarks falls.

The next important USD news will come from the US, where Kevin Warsh, the Fed Chair, will talk at the Jackson Hole Symposium. His statement will be watched closely as traders look for clarity. In all his past statements, he has maintained a vague outlook on inflation and interest rates. Unlike Janet Yellen and Jerome Powell, he has avoided provided forward guidance. 

As a result, the market is unsure of what to expect this year. According to Polymarket, the odds of a December rate hike stands at about 53%. In a statement, Robert Gill, a portfolio manager at Fairbank Investment said:

"This lack of direction can be frustrating. It is causing uncertainty and contributing to higher long-term bond yields, and this is an outcome that he seems to be designing."

Top BoJ official hints at September hike

Meanwhile, the USD/JPY pair is reacting to a statement by Ryozo Himino, the BoJ Deputy Governor. In a statement, he said that the bank may consider hiking interest rates in the coming meeting next month. He said that this hike will be possible if inflation remains stubbornly high. He said:

“If underlying inflation deviates upward to a level above the price stability target of 2%, that would have an adverse impact on the economy.”

A BoJ rate hike would be bullish for the Japanese yen, which remains near its lowest level in decades. It would help to narrow the gap between the US and Japanese interest rates, reducing its appeal as a carry trade funding currency. 

The next key catalyst for the USD/JPY pair will come from Japan, which will publish the latest Tokyo Consumer Price Index (CPI) report on Thursday. Economists expect the data to show that the Tokyo CPI rose 18% in August.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The four-hour chart shows that the USD/JPY pair has held steady in the past few days. Along the way, it has moved slightly above the 50-period Exponential Moving Average (EMA). 

At the same time, the pair has formed an ascending triangle pattern, a common bullish continuation sign. Also, the two lines of the MACD indicator have moved above the zero line. 

Therefore, the pair will likely have a bullish breakout as bulls target the year-to-date high of 163.97. This view will be confirmed if it moves above the crucial resistance level of 159.72.