US Dollar Forecast: USD/JPY Remains at Threat of FX Intervention

US Dollar Outlook: USD/JPY

Recent price action in USD/JPY has fueled speculation of a currency intervention as it quickly dipped to a fresh weekly low (147.29), but the US Non-Farm Payrolls (NFP) report may prop up the exchange rate as the update is anticipated to show another rise in employment.

US Dollar Forecast: USD/JPY Remains at Threat of FX Intervention

USD/JPY struggles to track the rise in long-term US Treasury yields as it pulls back from a fresh yearly high (150.16), and the FX market may face increased volatility over the coming days as the Federal Reserve shows a greater willingness to keep US interest rates higher for longer.

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However, signs of a slowing economy may produce a dissent within the Federal Open Market Committee (FOMC) as Vice-Chair Michael Barr anticipates ‘real GDP growth to moderate to somewhat below its potential rate over the next year,’ and the comments suggest central bank is in no rush to pursue a more restrictive policy as the ‘full effects of past tightening are yet to come.’

US Economic Calendar

FOREX.com Economic Calendar

In turn, data prints coming out of the US may sway the near-term outlook for USD/JPY as the economy is projected to add 170K jobs in September, while Average Hourly Earnings are expected to hold steady at 4.3% during the same period.

Signs of a robust labor market may raise the Fed’s scope to further combat inflation as the economy shows little indications of a recession, but a weaker-than-expected NFP report may produce headwinds for the Greenback as it encourages Chairman Jerome Powell and Co. to keep US interest rates on hold for the remainder of the year.

Nevertheless, the diverging paths between the FOMC and Bank of Japan (BoJ) may keep USD/JPY afloat as Governor Kazuo Ueda and Co. continue to carry out Quantitative and Qualitative Easing (QQE) with Yield Curve Control (YCC), but a further depreciation in the Yen may bring increased attention to foreign exchange markets as it raises the threat for a currency intervention.

With that said, USD/JPY may consolidate ahead of the US NFP report as it struggles to mirror the rise in long-term Treasury yields, but the exchange rate may continue to track the positive slope in the 50-Day SMA (146.00) as it holds above the moving average.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

USD/JPY pulls back from a fresh yearly high (150.16) to keep the Relative Strength Index (RSI) below overbought territory, and lack of momentum to push above the 149.40 (100% Fibonacci extension) to 150.30 (61.8% Fibonacci extension) region may push the exchange rate towards the 145.90 (50% Fibonacci extension) to 146.70 (78.6% Fibonacci retracement) area.
Next area of interest comes in around the September low (144.45), but USD/JPY may track the positive slope in the 50-Day SMA (146.00) as long as it holds above the moving average.
As a result, the opening range for October remains in focus as USD/JPY attempts to bounce back from a fresh weekly low (147.29) but need a close above the 149.40 (100% Fibonacci extension) to 150.30 (61.8% Fibonacci extension) region to open up the 2022 high (151.95).

Additional Market Outlooks:

Australian Dollar Forecast: AUD/USD Faces RBA and US NFP Report

US Dollar Forecast: USD/CAD Recovers Ahead of September Low

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong

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