USD/JPY Forecast: Dollar Pares Gains Ahead of US Inflation

• Futures indicate the market anticipates 140 basis points (bps) of cuts this year.

• Japanese workers’ real wages fell again in November.

• Tokyo’s consumer inflation fell further.

The USD/JPY forecast turns slightly bearish on Thursday as traders await US inflation data to shape their expectations on Fed rate cuts this year. Meanwhile, futures indicate the market anticipates 140 basis points (bps) of cuts this year. Moreover, they may begin as early as March. This means that markets are sensitive to unexpected data.

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Notably, the pair increased significantly after data on Wednesday revealed a 20th consecutive monthly contraction in Japanese workers’ real wages in November. BoJ policymakers had’ hoped for wage gains before policy tightening. 

Japan’s wage trend attracts a lot of attention globally. This is because the Bank of Japan considers pay and inflation outlooks crucial when debating removing its negative interest rate policy.

In November, inflation-adjusted real wages, a crucial factor in determining consumer purchasing power, declined by 3.0% compared to last year. Moreover, it exceeded October’s 2.3% decrease. Meanwhile, the government’s consumer inflation rate, used to calculate real wages, dropped to 3.3%. This value was the lowest level since July 2022. Additionally, the decline came from decreasing fuel costs and food price hikes.

However, data on Tuesday revealed that Tokyo’s consumer inflation, a key indicator of nationwide price trends, fell further. Consequently, there is still optimism that real wages will eventually rebound. This would provide a foundation for normalizing the Bank of Japan’s monetary policy.

USD/JPY key events today

• US Core Consumer Price Index m/m
• US Consumer Price Index m/m
• US Consumer Price Index y/y
• US unemployment claims

USD/JPY technical forecast: Price tests 145.74 barrier once again

On the charts, the USD/JPY price has risen to retest the 145.74 key resistance level after pulling back to retest the 30-SMA and the 143.51 support level. This is the second time bulls have attempted to push above 145.74 and might fail again.

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The first time, the price made a wick at the level before making a bearish engulfing candle and retreating. This time, bears have again made an engulfing candle that might lead to a collapse below the 30-SMA. Moreover, a bearish divergence in the RSI shows the second attempt at 145.74 is weaker. Consequently, USD/JPY might retest the 143.51 support level.

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• Source: https://www.forexcrunch.com/blog/2024/01/11/usd-jpy-forecast-dollar-pares-gains-ahead-of-us-inflation/