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- After calming the sharp gains, the US dollar against the Japanese yen (USD/JPY) returned to the support area of 148.80 at the beginning of this week’s trading.
- The Bank of Japan abandoned this morning the market expectation and kept its policy numbers unchanged which has always caused the decline of the Japanese yen instead of tightening it.
- Recently, the currency pair rebounded upward, breaching the psychological resistance of 150.00 again, settling around the resistance level of 150.31 at the time of writing the analysis.
US Data in Focus
After the Bank of Japan's announcement, the focus will be on the US job numbers and the US Federal Reserve's announcement. However, Employers in the United States of America may have eased the pace of hiring this month after increasing salaries by the largest amount since the beginning of the year, in line with the strong Labor market that supports economic growth. Furthermore, Government data next Friday is expected to show that jobs in the world's largest economy increased by about 190,000 jobs in October, a strong job growth that follows significant progress in the previous three months.
Also, Hourly wages are expected to rise at the slowest annual pace in more than two years, partly reflecting increased Labor force participation. Therefore, the moderation in wage gains helps explain why Federal Reserve policymakers are expected to keep US interest rates steady again tomorrow, Wednesday, after their two-day meeting.
Undoubtedly, the flexible American Labor market played an effective role in maintaining consumer spending and economic growth as inflationary pressures gradually declined. As, the Steady hiring is also a reason for economists to be more optimistic about the outlook, with recession prospects declining since June. Meanwhile, economists will also be watching a report on third-quarter employment costs on Tuesday for signs of cooler wage growth. Labor costs are the largest expense for employers, and any acceleration threatens to keep inflation high. Finally, the government's latest reading on productivity will also give an indication of how successful companies are in mitigating some of these rising costs.
Shortly, the gradual easing of tight working conditions may be reflected in a separate report this week. Also, US job opportunities are expected to decline in September from the previous month, towards levels not seen since March 2021.
The US inflation measure, which is closely monitored by the Federal Reserve, showed that price increases remained high in September amid active consumer spending and strong economic growth. On the other hand, Friday's report from the Commerce Department showed that prices rose 0.4% from August to September, the same as the previous month. Compared to the previous 12 months, the inflation rate was unchanged at 3.4%. Overall, the numbers released by the government last Friday show that the consumer remains surprisingly resilient, willing to spend quickly enough to support the economy. Although all efforts to face of main inflation and rising interest rates, but the strength of this spending would spread throughout the economy and helps fuel inflation.
On a cautionary note, consumers increasingly relied on savings to fuel their shopping last month. Income growth slowed. After adjusting for inflation, income fell slightly. However, spending jumped 0.4%, after adjusting for inflation. The savings rate fell to 3.4%, down from an average of more than 6% before the pandemic. The Fed is widely expected to keep its key short-term interest rate unchanged when it meets this week. Furthermore, policymakers at the bank have pointed to the risk that strong growth will keep inflation persistently high and require further interest rate hikes to suppress it.
Since March 2022, the US central bank has raised the key interest rate from near zero to about 5.4% in a coordinated campaign to tame inflation. Also, the annual inflation rate, as measured by the separate and more widely tracked Consumer Price Index, has fallen from a peak in June of last year of 9.1%.
USD/JPY Trading Outlook
The general trend of the USD/JPY is still bullish, and movement around and above the psychological resistance of 150.00 confirms the extent of bulls’ control over the trend. At the same time, the technical indicators are moving towards strong levels of saturation with buying, and we still prefer selling from above, despite the decisions of the Japanese Central Bank. Meanwhile, The Japanese administration does not want a further collapse of the currency price and can intervene at any time to stop the bleeding of losses. As we mentioned before, this would mean strong selling of all currencies against the Japanese yen.
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