USD/JPY Forecast: BoJ’s Interest Rate Hike Prospects and a Drop Toward 140

USD/JPY Movement on Monday

The USD/JPY gained 0.10% on Monday. Following a 0.47% rise on Friday, the USD/JPY ended the session at 149.144. The USD/JPY rose to a high of 149.332 before falling to a Monday session low of 148.905.

The Bank of Japan and Governor Ueda in the Spotlight

On Tuesday, the Bank of Japan will be in the spotlight. Decades-high wage hikes fueled bets on a Bank of Japan pivot from negative rates. The BoJ could deliver its first interest rate hike in 17 years.

Beyond the interest rate decision, investors must consider other policy tweaks. Possible policy tweaks may include ending the yield curve control policy (YCC).

Significantly, the BoJ may ignore recent economic indicators that sent mixed signals. Japan narrowly avoided an economic recession in Q4. However, the BoJ expects substantial wage hikes to fuel consumer spending and demand-driven inflation.

The BoJ monetary policy decision and monetary policy statement need consideration. Later in the session, the press conference also warrants investor attention. Intentions vis-à-vis further rate hikes and the outlook for the economy and inflation are likely focal points.

US Economic Calendar: US Building Permits and Housing Starts

On Tuesday, US building permits and housing starts will garner investor interest. Economists forecast housing starts to increase by 7% in February after sliding 14.8% in January. However, economists expect building permits to slip by 0.2% after falling 0.3% in January.

While the monthly figures will draw interest, investors must consider housing sector data trends.

An improving housing market could boost consumer confidence and spending. Consumer spending could fuel demand-driven inflation and delay the timeline for Fed rate cuts. A higher-for-longer Fed rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending.

The influence of housing sector data on Fed rate cut bets was evident on Monday. Better-than-expected NAHB Housing Market Index numbers further reduced bets on an H1 2024 Fed rate cut. Nonetheless, a higher-for-longer Fed rate path could elevate mortgage rates, impacting demand, house price trends, and consumer confidence.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the Bank of Japan monetary policy decision and Fed forward guidance. A BoJ pivot from negative rates and Fed support for an H1 2024 rate cut could signal a USD/JPY fall toward 140.

USD/JPY Price Action

Daily Chart

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

A USD/JPY move to the 150 handle could give the bulls a run at the 151.685 resistance level.

The BoJ monetary policy decision, forward guidance, and US housing sector data need consideration.

Conversely, a USD/JPY fall through the 148.529 support level and the 50-day EMA could bring the 147.500 handle into play.

The 14-day RSI at 51.84 suggests a USD/JPY return to the 151 handle before entering overbought territory.