USD/JPY Weekly Estimates: Is The Fed Concerned Over Inflation?

The USD/JPY has scarcely changed since the Omicron hysteria on November 26.

Perhaps the US inflation data and remarks from Fed officials, notably Chair Jerome Powell, that it is time for action on inflation have shifted the emphasis to Wednesday’s FOMC meeting.

On December 15, the Fed is largely expected to boost its monthly tapering from $15 billion to $20 or $25 billion. The $120 billion scheme would finish in April or March 2022, based on how the portions are handled.

For the year, the Fed is projected to predict higher inflation and two Fed funds rate rises. The September forecasts predicted the first pandemic rate rise in 2022.

The CBOE’s Fed funds futures predict a 61.1% possibility of three raises by December 14, 2022.

The week’s market low was on Monday at 112.74 and the peak was on Wednesday at 113.67. A 12-point daily range followed Monday’s 74-point advance above 113.000.

The yields on Treasury bills, notes, and bonds all increased. The 10-year note rose 15 basis points to 1.508% on Friday, but it remains 16 basis points below its November 23 high of 1.667%.

Treasury yields have risen to 1.764% on many occasions this year, but have yet to break that mark. The Fed may be poised to raise Treasury and commercial interest rates, but markets want proof, not words.

The data from Japan was conflicting. However, it was the third consecutive month of decline and the fourth in the previous six months.

Labor Cash Earnings climbed 0.2% in October, matching September and falling short of the 0.7% anticipated. In the current meter, it was better than expected, but in the outlook, it was worse.

Producer prices rose 0.6% month-on-month and 9% year-on-year in November, above expectations. That’s the only good news in deflationary Japan.

These differed across America. A better trade balance and a 52-year low in weekly initial unemployment claims in October. November’s headline and underlying inflation rates were both 6.8%, 39-year highs after October’s 6.2 and 4.6. The 5.6% spike from last November’s 1.2% CPI is the sharpest in 69 years.

Inflation data in the US was not worse than expected on Friday, causing the Dollar to weaken.

USD/JPY Forecasts

This pair is held prisoner by the US financial system and the Fed. The Fed can only slow US inflation by allowing Treasury rates to climb.

The credit market will do the rest, but speculators have been programmed to buy Treasuries at every unforeseen twist of the virus for over two years. The recent Omicron crisis is one example.

The US Federal Reserve and the Bank of Japan will restrict and order markets on Wednesday and Thursday. Restricted trade until the 2:00 p.m. (ET) Fed rate and taper Inflation and the Fed’s worries make raising US rates a foregone conclusion.

The Bank of Japan is going the other way. Prime Minister Fumio Kishida has pledged monetary and fiscal policy stimulus.

Both the BOJ and the government may increase their credit market purchases. The 10-year Japanese Government Bond (JGB) yield remained stable this week, ranging between 0.056 and 0.051%.

USD/JPY will climb as the Fed and BOJ pursue opposing worries and rate strategies. That depends on the Fed’s commitment to combating inflation. Wednesday will reveal all.

Technical Forecast For USD/JPY


Deceptive are the MACD and RSI (Moving Average Convergence Divergence) neutrality, as well as True Range’s dropping momentum.

Compared to the USD/JPY drop two weeks earlier, the MACD line is nearing the signal line from below, indicating a buying opportunity, if not a classic instruction. 

The USD/JPY just has to increase slightly to break the signal line. It should happen next week unless the Fed abdicates all inflation responsibilities on Wednesday.

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