USD/JPY Forecasts: Tokyo Inflation, the BoJ, and US Personal Income and Expenditures

Inflation and the Bank of Japan

On Friday, April 26, inflation figures for Tokyo put the investor focus on the USD/JPY.

The core annual inflation rate eased from 2.4% to 1.6 in April. Economists forecast a core inflation rate of 2.2%. Furthermore, the annual inflation rate declined from 2.6% to 1.8%. Economists expected an inflation rate of 2.6%.

The April figures will draw the interest of the Bank of Japan. Later in the Friday session, the Bank of Japan will deliver its monetary policy decision. Economists predict the BoJ will leave interest rates at zero. Nevertheless, the stats could influence the tone of the BoJ press conference, suggesting a lower-for-longer BoJ rate path.

Recently, Bank of Japan speakers warned against expectations of multiple rate hikes. However, the USD/JPY rising to the 155 handle created uncertainty about the BoJ interest rate trajectory.

On the one hand, a weaker Yen raises import costs. Higher import costs could increase consumer prices and affect household spending trends.

On the other hand, an interest rate hike would raise borrowing costs and offset the effects of wage hikes on disposable income. Downward trends in disposable income could reduce consumer spending and dampen demand-driven inflationary pressures.

Vis-à-vis the Japanese economy, both scenarios may concern BoJ Board Members. Private consumption contributes over 50% to the Japanese economy.

Investors should consider BoJ comments relating to the Yen, inflation, and the timing of a BoJ rate hike.

US Economic Calendar: Personal Income and Expenditures Report

Later in the Friday session, the US Personal Income and Expenditure Report warrants investor attention.

Economists forecast personal income and spending to increase by 0.5% and 0.6% in March, respectively. Personal income and spending rose by 0.3% and 0.8% in February.

Moreover, economists expect the Core PCE Price Index to increase 2.6% year-on-year in March. In February, the Core PCE Price Index rose by 2.8% year-on-year.

Upward personal income/spending trends and sticky inflation could reduce investor bets on multiple 2024 Fed rate cuts. Higher wages would increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

Other US economic indicators include pending home sales and finalized Michigan Sentiment numbers. A market revision to the preliminary Michigan Consumer Sentiment and Inflation Expectations Indexes could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the Bank of Japan and the US Personal Income and Expenditures Report. A hotter-than-expected US Personal Income and Expenditures Report could tilt monetary policy divergence toward the US dollar. However, investors should also consider the Bank of Japan press conference.

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 breakout from the April 25 high of 155.747 would give the bulls a run at the 156 handle.

Investors should consider the Bank of Japan press conference and the US Personal Income and Expenditures Report.

Conversely, a USD/JPY fall through the 155 handle could signal a drop toward the 50-day EMA and the 151.685 support level. Buying pressure may intensify at the 151.685 support level. The 50-day EMA is confluent with the support level.

The 14-day RSI at 79.13 shows the USD/JPY in overbought territory. Selling pressure may increase at the April 25 high of 155.747.