USDJPY Remains Supported on the Way to 160, As Japanese Spending Falls Again

USD/JPY retreated and fell below 1.53 yesterday after the 3 cent surge on the Republican victory, but it found support once again, while fundamentals continue to remain bullish for this pair. Today household spending in Japan showed another major decline, while yesterday earnings missed expectations, which don’t give a reason for the BOJ to raise interest rates.

The USD/JPY has been in an upward trend since mid-September, with a recent boost of 3 cents following the U.S. presidential election, reaching close to 154.70. After the Bank of Japan (BOJ) announced rate hikes, the pair initially dipped but found support at the 100 SMA (green), allowing the upward trend to resume.

USD/JPY Chart H4 – MAs Continue to Hold As Support

A pullback in the USD yesterday caused the pair to fall by over 2 cents, but this time, support held at the 50 SMA (yellow). Currently, buyers are setting their sights on the 160.00 level to confirm continued strength in USD/JPY , with 155.00 and 160.00 as key targets if no intervention occurs. Japan’s economic data, however, shows signs of strain. September’s Labor Cash Earnings rose by 2.8% year-over-year, missing the forecast of 3.0%. Real Cash Earnings dropped by -0.1%, extending a two-month decline as inflation pressures erode the household purchasing power.

Additionally, Household Spending continues to show contraction, further weighing on the yen. With the yen’s depreciation, market participants are closely watching for comments from BOJ officials, as intervention remains a risk if USD/JPY continues to climb. If the pair approaches 155 or 160, the likelihood of intervention may increase significantly.

In September, Japanese household spending fell by 1.3% month-over-month, which was a larger decline than the expected 0.7%. This followed a 2.0% increase in August. Year-over-year, spending dropped 1.1%, marking the second consecutive month of decline, although this was less severe than the anticipated 2.1% decrease. The ongoing y/y decline underscores weakness in consumer spending, potentially signaling challenges for Japan’s economic recovery.

Japan Household Spending Report for October

• • Month-over-Month (m/m):
    • Declined by -1.3% (expected decline was -0.7%).
    • Previous month (August) saw a +2.0% increase m/m.
  • Year-over-Year (y/y):
    • Fell by -1.1%, marking a second consecutive month of y/y decline.
    • Expected decline was steeper at -2.1%.
    • Previous year-over-year figure (August) was -1.9%.
• Key Insights:
  • The back-to-back y/y decline reflects ongoing challenges in consumer spending.
  • The weaker-than-expected monthly figure suggests potential pressure on Japan’s economic recovery efforts.

Indeed, these spending figures aren’t supportive of a Bank of Japan (BoJ) rate hike. The BoJ aims for sustained wage growth to stimulate household spending, which would, in turn, support stable inflation at their target. However, with household expenditure slipping again in September—both month-over-month and year-over-year—consumer demand remains weak, suggesting that inflationary momentum may struggle to build sustainably. This slowdown in spending highlights the ongoing challenge for the BoJ to achieve its inflation goals without solid underlying demand, which is essential for justifying any rate hike.

USD/JPY Live Chart