USD/JPY: Better 3Q GDP adds to BoJ hike story – OCBC

USD/JPY waffled around 150 levels. Bias remains to sell rallies. BoJ to carry on with policy normalization with a hike next week and into 2025, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

The risk is a slowdown in pace of respective policy normalization

“Bearish momentum on daily chart intact while RSI is flat. Bias remains to sell rallies. Support at 149.50, 148.80 levels (100 DMA) and 148.20 (38.2% fibo retracement of September low to November high). Resistance at 150.70, 151.30 (50 DMA), 152 levels (200 DMA). In terms of data, there is a few to keep a look out for this week, including PPI on Wednesday and Tankan survey on Friday before BoJ MPC (19 December).”

“But largely, we are looking for BoJ to carry on with policy normalization with a hike next week and into 2025. Recent uptick in base pay supports the view about positive development in labor market, alongside still elevated services inflation, better 3Q GDP (that was just released this morning) and expectations for 5-6% wage increases for 2025.”

“For USD/JPY, it is not just Japan or BoJ in the equation but the Fed and US data also matters. While we are of the view that broader direction of travel for USD/JPY is skewed towards the downside as Fed cuts and BoJ hikes. The risk is a slowdown in pace of respective policy normalization, especially if Fed slows pace on return of US exceptionalism. Then USD/JPY moves may even face intermittent upward pressure.”