USD/JPY forecast as Fed and Bank of Japan diverges

By: Crispus Nyaga
Crispus Nyaga
Crispus is a Financial Analyst for Invezz covering the stock, cryptocurrency and forex markets. He’s an experienced analyst with… read more.
on Nov 5, 2021
  • The USD/JPY pair is in a tight range ahead of the US NFP data.
  • The pair has tilted lower after the hawkish Federal Reserve decision.
  • It will remain in a tight range in the coming months.

The USD/JPY price moved sideways on Friday morning as investors reflected on the Federal Reserve decision and the upcoming US jobs data. The pair is trading at 113.70, which is about 0.88% below the highest level in October.

Japan household spending

The USD/JPY price was little changed after Japan released strong household spending data. According to the country’s statistics agency, household spending increased by 5% on a month-on-month basis in September. This was a major improvement after the spending declined by 3.9% in August.

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As a result, the spending declined by 1.9% on a year-on-year basis. The decline was better than the median estimate of -3.9%.

Household spending is an important economic data because of the crucial role that consumer spending plays in the economy. It is the biggest component of the economy.

The USD/JPY is also reacting to the latest Federal Reserve interest rate decision. On Wednesday, the Federal Reserve decided to turn hawkish as the economy rebounded. It left interest rates unchanged at the range of 0% and 0.25%. At the same time, the bank decided to start tapering of its asset purchases.

By so doing, the Fed diverged with the decision by the Bank of Japan (BoJ). In its September decision, the BOJ left its monetary policy intact and hinted that it will not change it in the coming months. As such, its interest rates, quantitative easing, and yield curve control are expected to remain intact in the coming months.

Looking ahead, the USD/JPY will react to the upcoming US non-farm payrolls data that will come out on Friday. Analysts expect the data to show that the economy added about 400k jobs while the unemployment rate declined to 4.6% in September.

USD/JPY forecast

USD/JPY

The four-hour chart shows that the USD/JPY has been under pressure in the past few days. The pair has managed to drop by about 0.88% from its highest level in September. At the same time, it has moved slightly below the 25-day and 50-day moving averages. 

The pair has also formed a triangle pattern that is shown in black. This pattern has a while to go before it reaches its level of confluence.

Therefore, the pair will likely remain in this range in the near term. The key levels to watch will be ay 113.00 and 114.00.

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