Bank of Japan in the Spotlight as Markets Shift Rate Hike Bets
While machinery orders require consideration, the BoJ’s monetary policy signals will likely have greater influence on the yen. BoJ Governor Kazuo Ueda and policymaker Naoki Tamura are scheduled to speak.
Their views on Takaichi’s LDP election win, the inflation outlook, and the economy could give clues about the timing of an interest rate hike. Given last Friday’s pullback, the USD/JPY pair could face heavy selling pressure if the BoJ hints at a Q4 rate hike. On the other hand, calls to delay a rate hike until 2026 could trigger another USD/JPY breakout.
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USD/JPY Outlook: Economic Indicators and the BoJ
- Bullish Yen Scenario: Upbeat Japanese data, an LDP gridlock, or hawkish BoJ chatter could drag USD/JPY toward 147.5.
- Bearish Yen Scenario: Weaker data, an LDP majority coalition, or dovish BoJ rhetoric may send the pair toward 155.
The US economic calendar could be bare for a second week after the seventh Senate vote failed to pass a stopgap funding bill. An extended shutdown throughout the next week would leave trade developments, Capitol Hill, and the Fed to drive price trends.
Key events include:
- Fed Chair Powell speech (October 14).
If the US government reopens on October 14
- Retail sales (October 16): Forecast to increase 0.4% MoM in September after rising 0.6% in August.
- Core Producer Prices: (October 16): Expected to rise 2.9% YoY in September, up from 2.8% in August.
Potential releases of delayed reports, including weekly jobless claims and September’s US jobs report, also require consideration. There are three key scenarios for traders to consider this week.
Softer-than-expected US labor market data and cooling inflationary pressures, or further delays to key data, could strengthen expectations of multiple Q4 Fed rate cuts. A more dovish Fed policy stance would temper demand for the US dollar and weigh on the USD/JPY pair.
A sharp rise in unemployment and softer wage growth, combined with rising inflationary pressures, could fuel stagflation jitters. Rising stagflation risks would shift attention to whether the Fed prioritizes labor market support or tightening to tame inflation.
Stronger-than-expected labor market data and rising prices could dampen bets on Fed rate cuts, lifting demand for the US dollar.
Short-term Forecast:
- Bullish US Dollar Scenario: Strong US economic data or hawkish Fed signals may send USD/JPY toward 155.
- Bearish US Dollar Scenario: Weaker US data or dovish Fed rhetoric could push USD/JPY toward 147.5.
USD/JPY Price Action
Daily Chart
On the daily chart, USD/JPY trades above the 50- and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias.
A breakout above 152 could bring the October 10 high of 153.274 into play. A sustained move through 153.274 may enable the bulls to target 155.
On the downside, a drop below 150 could expose the 149.358 support level. If breached, the 50- and 200-day EMAs and 147.5 would be the next key support levels.
