USD/JPY Forecast: Japan’s Economic Indicators Signal Yen’s Path

Industrial Production, Retail Sales, Unemployment, and the Bank of Japan

Industrial production, retail sales, and unemployment figures from Japan will impact buyer demand for the USD/JPY. Significantly, the stats could influence the Bank of Japan interest rate trajectory.

Upward trends in retail sales could fuel demand-driven inflation and allow the BoJ to begin discussions about rate hikes. Furthermore, tighter labor market conditions could support wage growth. Higher wages would increase disposable income and signal upward trends in consumer spending.

The BoJ hopes the services sector and wage growth will fuel demand-driven inflation. Nevertheless, a jump in industrial production could also influence expectations of a near-term BoJ rate hike. An improving macroeconomic environment could boost consumer confidence and spending.

Economists forecast retail sales to increase 2.5% year-on-year in March after rising 4.6% in February. Furthermore, economists expect the unemployment rate to fall from 2.6% to 2.5%.

Economists predict industrial production to increase 3.4% in March after falling 0.6% in February.

Beyond the economic calendar, Bank of Japan chatter also need consideration. BoJ concerns about the effects of a weaker Yen on inflation will likely linger despite the retreat from 160.

US Economic Calendar: Employment Costs and Consumer Confidence

Later in the Tuesday session, US employment costs and consumer confidence will attract investor attention.

Economists forecast employment cost – wages to increase by 0.9% quarter-on-quarter in Q1 2024. In Q4 2023, employment cost – wages advanced by 0.9% quarter-on-quarter.

Higher-than-expected wages could increase disposable income and consumer spending. Upward trends in consumer spending could fuel demand-driven inflation. A more hawkish rate path would raise borrowing costs and reduce disposable income.

However, consumer confidence trends also need consideration. Economists expect the CB Consumer Confidence Index to decline from 104.7 to 104.0 in April.

Weaker-than-expected numbers could signal a pullback in consumer spending. A weaker outlook for spending would signal a softer inflation outlook and support investor expectations of a September Fed rate cut. The CB Consumer Confidence Index offers a forward looking view on consumption and may impact the USD/JPY more.

Other stats include house price data and Chicago PMI numbers. However, these will likely play second fiddle to the wage and consumer confidence figures.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the US economic data and the FOMC press conference. Upbeat numbers and a hawkish Fed could tilt monetary policy divergence toward the US dollar. However, Japanese government interventions could overshadow the effects of the US economic calendar on the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY return to the 158 handle would support a move to the April 29 high of 160.209.

Bank of Japan commentary, Japanese government interventions, and the US economic calendar need consideration.

Conversely, a USD/JPY drop below the 155 handle could give the bears a run at the 50-day EMA and the 151.685 support level.

The 14-day RSI at 66.10 suggests the USD/JPY could return to 158 before entering overbought territory.