USD/JPY Forecast: Yen Weakness, Intervention Risks, and Fed Speakers

The Bank of Japan, the Japanese Government, and Intervention Risk

On Wednesday (May 7), the Bank of Japan and the Japanese government will put the USD/JPY under the spotlight.

On Friday (May 3), the USD/JPY slid to a session low of 151.856. However, hawkish Fed chatter and uncertainty about the timing of a Bank of Japan rate hike have driven buyer demand for the USD/JPY.

With the USD/JPY currently at 154.784, intervention risks are resurfacing. On Tuesday, Masato Kanda issued a warning, saying that the government would intervene in case of any speculative or disorderly moves in the foreign exchange markets. After the sharp pullback from 160, warnings could intensify far sooner.

On Wednesday, foreign investments into bonds and stocks will draw investor interest. However, the numbers will unlikely influence the Bank of Japan rate path. Wage growth numbers and the Bank of Japan Summary of Opinions will impact the Yen more on Thursday (May 9).

The Bank of Japan hopes wage growth and services inflation will fuel demand-driven inflation.

While services sector activity picked up in April, forecasts for wage growth are less convincing. Economists expect average cash earnings to increase 1.5% year-on-year in March after rising 1.8% in February. Weaker-than-expected wage growth figures could impact consumer price trends and hopes of a BoJ rate hike.

US Economic Calendar: FOMC Member Speeches in Focus

Later in the Wednesday session, the Fed will be in the spotlight. FOMC members Susan Collins, Lisa Cook, and Philip Jefferson are on the calendar to speak.

Investors should consider views on inflation, the labor market, and the Fed rate path. Recent Fed speeches have fueled uncertainty about a September Fed rate cut. While wage growth slowed in April, inflation remains sticky, forcing members to reconsider their projections.

Minneapolis Fed President Neel Kashkari released an essay on Tuesday (May 7), raising concerns about inflation and the monetary policy stance. Similar views could further impact investor bets on a September Fed rate cut and leave the Fed with limited wriggle room to deliver multiple rate cuts in 2024.

According to the CME FedWatch Tool, the probability of the Fed standing pat in September increased from 34.3% to 34.8% on Tuesday (May 7). Significantly, the chances of the Fed standing pat stood at 54.1% on April 30, before the US Jobs Report.

Short-term Forecast

Near-term trends for the USD/JPY hinge on wage growth and household spending numbers from Japan and Fed chatter. Softer-than-expected figures from Japan could leave the Bank of Japan in a holding pattern, tilting monetary policy divergence toward the US dollar. However, FOMC member chatter will influence buyer appetite for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the 155 handle could give the bulls a run at the 158 handle. A break above the 158 handle would bring the April 29 high of 160.209 into play.

Bank of Japan and Japanese government commentary needs consideration before the US session.

Alternatively, a USD/JPY fall through the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 53.98 suggests a USD/JPY return to the 160 handle before entering overbought territory.