Japanese Yen Forecast Weekly: Will US Inflation and Japan GDP Shift BoJ Policy Outlook?

USD/JPY Snaps Losing Streak in Another Choppy Week

The USD/JPY enters a high-stakes week as traders brace for a data barrage from both sides of the Pacific. Inflation, GDP, and central bank rhetoric from Tokyo to Washington could set the tone for the yen’s next big move, with market sentiment finely balanced between a breakout and a pullback.

USD/JPY briefly climbed to an August 4 high of 148.089. A choppy August 6 session saw the pair fall to an August 6 low of 146.618 before recovering to close the week up 0.22% at 147.703.

Outlook: Inflation and GDP Numbers to Trigger Speculation Over a BoJ Rate Hike

Wage growth and household spending numbers fueled uncertainty about the timing of a Bank of Japan rate hike last week. In the week ahead, producer prices and GDP data will influence the Bank of Japan’s monetary policy stance.

Producer Prices to Signal Inflation Outlook

On Wednesday, August 13, Japanese producer prices could influence the BoJ rate path. Economists forecast producer prices to rise 2.6% year-on-year in July, easing from a 2.9% increase in June.

Higher-than-expected producer prices may signal a pickup in demand and inflation, raising bets on a BoJ rate hike. A more hawkish BoJ policy outlook could boost demand for the Japanese Yen. Conversely, a softer reading may suggest a less hawkish BoJ policy stance and weigh on the Yen.

Economists consider producer prices a leading inflation indicator. Producers adjust prices subject to demand, either passing on cost savings or raising prices.

Will Japan Avoid a Q2 Contraction?

On Friday, August 15, Japan’s economy will be under the spotlight, with GDP numbers in focus. Economists expect Japan’s economy to expand 0.1% quarter-on-quarter in the second quarter after stalling in the first quarter.

Better-than-expected growth could boost expectations of a Q4 BoJ interest rate hike, lifting appetite for the Japanese Yen. However, an unexpected economic contraction may close the door on a Q4 BoJ move, potentially sinking the Yen.

Beyond the headline numbers, investors should consider external demand and private consumption numbers. Improving external demand could ease concerns that US tariffs would affect Japan’s economy, while a pickup in private consumption may fuel demand-driven inflation. These scenarios may cement a Q4 BoJ policy move. On the other hand, weaker numbers could delay the timeline for a rate hike.

USD/JPY Outlook: Economic Indicators and the BoJ

• Bullish Yen Scenario: Upbeat Japanese data or hawkish BoJ policy rhetoric could push USD/JPY toward the 50-day Exponential Moving Average (EMA).
• Bearish Yen Scenario: Disappointing Japanese data or dovish BoJ signals may drive the pair above the 200-day EMA, bringing the 149.358 resistance level into play.

US Inflation, Retail Sales, and Labor Market Data to Fuel US Dollar Volatility

In the US, crucial economic indicators and Fed policy cues will draw the Fed’s attention amid expectations of a rate cut. Key events include:

• CPI Report (August 12): Annual inflation rate expected to rise from 2.7% in June to 2.8% in July.
• Producer Prices (August 14): Forecast to increase 2.5% year-on-year in July, following a 2.3% rise in June.
• Initial Jobless Claims (August 14): Expected to rise from 226k (week ending August 2) to 228k (August 9).
• Retail Sales (August 15): Expected to rise 0.5% month-on-month in July after increasing 0.6% in June.
• Michigan Consumer Sentiment: Forecast to drop from 61.7 in July to 60.5 in August.

Softer US inflation and producer price figures may raise bets on multiple Fed rate cuts. Meanwhile, falling retail sales, weaker consumer sentiment, and a spike in jobless claims may trigger fears of a US recession, another potential headwind for the US dollar. A more dovish Fed rate path and recession risks could push USD/JPY toward the 50-day EMA, exposing the crucial 145 support level.

On the other hand, hotter inflation data and upbeat retail sales, jobless claims, and consumer sentiment numbers may temper bets on a Fed rate cut. A less dovish Fed policy stance may send USD/JPY toward the 200-day EMA. A break above the 200-day EMA may pave the way toward the 149.358 resistance level.

Fed commentary also requires consideration as FOMC members’ reactions to the US data are likely to swing rate cut expectations.

Potential Price Scenarios

• Bullish US Dollar Scenario: Stronger US data or hawkish Fed chatter may drive USD/JPY toward the 200-day EMA. A break above the 200-day EMA could enable the bulls to target the 149.358 resistance level.
• Bearish US Dollar Scenario: Weaker US data or dovish Fed signals could push USD/JPY toward the 50-day EMA. A drop below the 50-day EMA may bring the 145 support level into play.

Short-term Forecast:

USD/JPY’s near-term outlook will hinge on key economic data and central bank policy signals. Expectations of monetary policy divergence could materially weigh on USD/JPY.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades above its 50-day Exponential Moving Average (EMA) but below the 200-day EMA. The EMAs suggest a bullish near-term but bearish longer-term bias.

A breakout above the 200-day EMA could bring the 149.458 resistance level into play. A sustained move through 149.458 may open the door to a test of the August 1 high of 150.917.

On the downside, a break below the 50-day EMA could allow the bears to target the crucial 145 support level. Increased selling pressure could bring May and June’s 142.5 support level into sight.

Key Takeaway

The USD/JPY could face increased volatility in the week ahead as key data may shift sentiment toward Fed and BoJ policy moves. Key macroeconomic data and central bank policy rhetoric will affect USD/JPY trends. Monitoring real-time developments will be crucial in navigating short-term movements.

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