“Japan’s Yen in real effective terms is almost as weak as Turkish Lira, which is the world’s weakest currency after Erdogan eviscerated his central bank. Japan is in denial on debt. Sanae Takaichi’s fiscal stimulus makes this worse…”

James E. Thorne, Chief Market Strategist at Wellington Altus, previously commented:

“Sanae Takaichi, the “Iron Lady of Japan,” has revived Abenomics-style stimulus that will expand global liquidity through fiscal easing and ultra-loose credit. Her policies strengthen the yen carry trade and the U.S. dollar, gold’s pullback should not be a surprise. Contrary to popular belief, the “death of the dollar” is greatly exaggerated. King Dollar is alive and well.”

On Monday, November 24, debates over the fiscal stimulus package and BoJ commentary will influence USD/JPY trends. Traders should also monitor yen intervention warnings from the Japanese government if USD/JPY climbs toward 160.

Meanwhile, US economic data will also play a crucial role in driving USD/JPY trends through its impact on Fed rate expectations.

US Economy and Fed Speakers in Focus

Economists forecast the Chicago Fed National Activity Index (CFNAI) to drop from -0.12 in August to -0.2 in October. Furthermore, economists expect the Dallas Fed Manufacturing Index to rise from -5.0 in October to -1.0 in November.

CFNAI will likely face greater scrutiny given that the index captures the entire US economy, including manufacturing and services. Economists view the CFNAI as a broader economic barometer since it considers production, employment, personal income, and sales. By contrast, the manufacturing sector contributes around 10% to the US GDP.

A sharper-than-expected fall in the CFNAI could signal a loss of economic momentum midway through Q4, supporting a more dovish Fed policy stance. USD/JPY may drop toward 155 on a lower CFNAI reading.

Beyond the data, traders should closely monitor FOMC members’ speeches after last week’s shift in sentiment toward Fed rate cuts. According to the CME FedWatch Tool, the chances of a December Fed rate cut jumped from 44.4% on November 14 to 71.0% on November 21.

Growing support for a December cut could weaken demand for the US dollar and push USD/JPY toward 150.

USD/JPY Scenarios: Diverging Monetary Policies

• Bearish USD/JPY Scenario: Hawkish BoJ chatter, intervention threats, softer US data, and dovish Fed comments could drag USD/JPY toward 150.
• Bullish USD/JPY Scenario: Dovish BoJ rhetoric, stronger US data, and hawkish Fed comments could send USD/JPY toward 160.