PBOC is expected to set the USD/CNY reference rate at 7.2564 – Reuters estimatePBOC is expected to set the USD/CNY reference rate at 7.2564 – Reuters estimate
USD/JPY has bounced higher despite a massive gain in Japanese inflationUSD/JPY has bounced higher despite a massive gain in Japanese inflation

GDP Numbers from Japan in the Spotlight

On Wednesday, Q3 2023 GDP numbers from Japan garnered investor attention. The Japanese economy contracted 0.5% in Q3 after expanding 1.2% in the second quarter. Economists forecast the economy to contract by 0.1%. Year-over-year, the economy shrank by 2.1% after growing 4.8% in the second quarter. Economists forecast a 0.6% contraction.

According to the Cabinet Office, private consumption stalled, with private demand (-2.3%) and domestic demand (-1.6%) dragging on the economy.

The latest figures will give Bank of Japan Governor Kazuo Ueda breathing room. Inflation has pressured the BoJ to begin pivoting away from ultra-loose policy. However, lackluster wage growth and weak demand are bugbears.

On Tuesday, BoJ Deputy Governor Shinichi Uchida reportedly discussed plans to boost wages through corporate profits. However, the latest GDP numbers may give firms little incentive to boost wage growth and consumers a reason to curb spending.

US Retail Sales and Inflation in Focus

On Wednesday, US retail sales and producer prices will test the investor appetite for the US dollar. A larger-than-expected fall in retail sales would further support bets on the Fed ending its rate hike cycle.

A downward trend in consumer spending would ease demand-driven inflationary pressures and the need for a hawkish Fed rate path. However, US private consumption contributes over 60% to the US economy. A negative outlook on spending could raise fears of a hard landing and support an H1 2024 Fed rate cut.

Producer prices can signal a weak demand environment as producers lower prices to stay competitive, influencing consumer price inflation trends.

Economists forecast producer prices to increase by 0.1% in October after rising by 0.5% in September.

With inflation and retail sales in focus, Fed speeches may influence the appetite for the US dollar. FOMC member Michael Barr is on the calendar to speak. Comments relating to the economy and interest rates need consideration.

Short-term Forecast

Near-term USD/JPY trends will hinge on US retail sales and Fed speakers. Cracks in the US economy and dovish Fed comments could raise bets on a Fed rate cut. Bets on a Fed rate cut would tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY return to 151 would support a break above the 151.889 resistance level.

On Wednesday, US inflation, retail sales, and Fed speeches are focal points.

A break below the 150.201 support level would give the bears a run at the 50-day EMA.

Weaker-than-expected US retail sales and producer prices could bring sub-150 into play.

The 14-day RSI at 52.76 suggests a USD/JPY move to the 151.889 resistance level before entering overbought territory.

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