USD/JPY Price Forecast: Bulls look to seize control amid BoJ uncertainty, fresh USD buying

The USD/JPY pair climbs back to mid-153.00s during the early part of the European session on Friday and reverses a part of the previous day's downfall to an over one-week low. The Japanese Yen (JPY) is pressured by weaker domestic data, which pushed back against market expectations for an immediate interest rate hike by the Bank of Japan (BoJ). This, along with the emergence of some US Dollar (USD) buying, turns out to be a key factor acting as a tailwind for the currency pair.

The internal affairs ministry reported that Japan's household spending rose 1.8% from a year earlier in September, compared to 2.5% expected and 2.3% growth recorded in the previous month. On a seasonally adjusted, month-on-month basis, spending fell 0.7%, suggesting that existing economic conditions might be influencing household expenditure in a notable manner. The data, in turn, fueled speculations that weaker consumer spending could cool demand-driven inflation and allow the BoJ to further delay raising interest rates on the back of Japan's new Prime Minister Sanae Takaichi's pro-stimulus stance.

In fact, Takaichi is reportedly looking to finalize an economic stimulus package of around $65 billion to address inflation and growth by late November, and pass a supplementary budget to fund it. This makes it highly unlikely the BoJ will consider tightening monetary policy in the near future, which, in turn, prompts some JPY selling. The USD, on the other hand, gains some positive traction following the overnight decline to the weekly low, which contributes to the USD/JPY pair's intraday recovery of around 75 pips, from the 152.80 area. However, a combination of factors warrants caution for bullish traders.

Minutes of the BoJ's September 18-19 meeting highlighted a cautious rate-hike path as policymakers weighed inflation dynamics and trade risks. The central bank, however, may be able to return to a stance of raising interest rates, as the BoJ's 2% price stability target has been more or less achieved. Japan’s Vice Finance Minister for International Affairs and top FX official, Atsushi Mimura, said on Wednesday that the recent JPY moves deviate from the fundamentals amid speculations about macroeconomic policies, especially fiscal policy. This revives intervention fears and could help limit deeper losses for the JPY.

The longest-ever US government shutdown extends for the 38th day amid a congressional impasse, raising economic concerns. In fact, the nonpartisan Congressional Budget Office estimated the government shutdown could slice between 1.0 and 2.0% off Gross Domestic Product in the fourth quarter. Moreover, a resolution appears no closer after Democrats signaled that they were prepared to block GOP plans to force a vote later today. This, along with persistent trade-related uncertainties and bets for more interest rate cuts by the US Federal Reserve (Fed), might cap gains for the greenback and the USD/JPY pair.

The US Supreme Court on Wednesday grilled lawyers over tariffs imposed under a 1977 emergency powers law, with even conservative justices expressing skepticism over presidential powers in the matter. Meanwhile, data from workforce analytics company Revelio Labs showed that 9,100 jobs were lost in October, and government payrolls fell by 22,200 positions. Adding to this, an estimate from the Chicago Fed suggests that the unemployment rate edged up last month. This points to a deteriorating labor market and keeps bets for a December Fed rate cut move on the table, warranting caution for the USD bulls.

USD/JPY 4-hour chart

Technical Outlook

Positive oscillators on the daily chart remain supportive of the move higher. However, the recent repeated failures in the vicinity of mid-154.00s, or the highest level since February 13, touched earlier this week, and the subsequent slide warrants some caution before positioning for further gains. Any further move up is more likely to face some resistance near the 154.00 mark ahead of the 154.45-154.50 supply zone. The latter should now act as a key pivotal point, above which the USD/JPY pair could climb to the 155.00 psychological mark en route to the 155.60-155.65 barrier and the 156.00 round figure.

On the flip side, the 153.10-153.00 area now seems to protect the immediate downside ahead of the overnight swing low, around the 152.80 region. Some follow-through selling should pave the way for deeper losses to the 152.15-152.10 region. A convincing break below the latter will be seen as a fresh trigger for bearish traders and set the stage for some meaningful downside for the USD/JPY pair.