Japanese Yen Weekly Forecast: Yen Faces Pressure as Japan GDP and US CPI Loom Large

USD/JPY Gains Ahead of US-China Trade Talks – What’s Next for the Yen?

Trade developments lifted risk appetite last week, driving USD/JPY higher. As the pair gains momentum, market focus shifts to trade news, key economic data, and central bank signals.

A US-UK trade deal raised hopes of a US-Japan trade agreement, weighing on the Japanese Yen. The Bank of Japan’s recent pivot to a hold stance further pressured the Yen.

A pickup in risk appetite and fading bets on a BoJ rate hike sent the USD/JPY pair up 0.28% to close the week ending May 9 at 145.362.

Outlook: Trade Talks, BoJ Signals, and Domestic Data in Focus

Looking ahead, trade-related updates remain a key driver for USD/JPY. However, traders should also consider Bank of Japan commentary and Japan’s economic indicators.

Ecowatchers Survey in Focus Amid Economic Uncertainty

On Monday, May 12, investor focus will turn to Japan’s services sector outlook. Economists forecast the Eco Watchers Survey Outlook Index to rise from 45.2 in March to 45.5 in April.

Reflecting worker sentiment across the services sector, a higher reading could signal improving consumer confidence. Rising confidence may fuel spending and demand-driven inflation, supporting a more hawkish BoJ stance. Conversely, a lower print could indicate weaker spending, tempering rate hike expectations.

BoJ Summary of Opinions: Rate Hike Clues Ahead?

On Tuesday, May 13, the BoJ’s Summary of Opinions will offer insights into the May pivot from rate hikes to caution amid tariff-driven uncertainties.

Views on the economic outlook, inflation, and the timeline for rate hikes could be crucial for USD/JPY trends. Concerns about the economic outlook and inflation may support holding rates steady in 2025. However, suggestions that a US-Japan trade deal could revive rate hike chatter may boost Yen appetite.

Producer Prices and Inflation Outlook

Producer prices will draw interest on Wednesday, May 14, after the BoJ’s softer inflation forecast. Economists expect producer prices to rise 4.0% year-on-year in April after increasing 4.2% in March.

A lower reading could suggest a softer inflation outlook, since producers lower prices when demand weakens, passing cost savings on to customers. On the other hand, a higher reading could suggest rising demand, potentially supporting a 2025 BoJ rate hike.

Japan GDP: Will the Economy Contract?

On Friday, May 16, Japan’s Q1 2025 GDP report will affect the BoJ rate path and USD/JPY trends. Economists forecast Japan’s economy to contract by 0.1% quarter-on-quarter after expanding 0.6% in Q4 2024.

A more marked contraction could end expectations for a 2025 BoJ rate hike, weighing on Yen appetite. However, an unexpected expansion may leave the door open to a 2025 rate hike, bolstering Yen demand. Private consumption, expected to rise 0.3% after stalling in Q4, will be closely watched.

USD/JPY Outlook: Tariffs, Trade, and Consumption Trends

USD/JPY faces a crucial week as focus shifts from tariffs to trade deals. Trade developments will be crucial for risk sentiment and Yen trends. However, economic indicators and central bank commentary will also require consideration.

• Bullish Yen Scenario: Upbeat data, a hawkish BoJ stance, or an escalation in trade tensions could drag USD/JPY toward 140.
• Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
• Bearish Yen Scenario: Weak data, dovish BoJ signals, or easing trade tensions may drive the pair toward 150.

US Data to Drive Fed Policy and Dollar Demand

While trade developments will remain key, US inflation and sentiment data are also likely to influence Fed policy and US dollar demand. Key data releases this week include:

• CPI Report (May 13).
• Retail Sales (May 15).
• Initial Jobless Claims (May 15).
• Producer Prices (May 15).
• Michigan Consumer Sentiment (May 16).

Economists expect the annual inflation rate to climb from 2.4% in March to 2.6% in April. Rising inflation could sink bets on a June Fed rate cut, driving US dollar demand. However, a softer reading may revive Fed rate cut expectations, weighing on the US dollar.

Producer price trends also need consideration since producers adjust prices based on demand. Economists forecast producer prices to rise 0.2% month-on-month in April after falling 0.4% in March.

Meanwhile, retail sales will influence sentiment toward inflation, the economy, and the Fed’s stance. Economists forecast retail sales to fall 0.8% month-on-month in April after surging 1.4% in March. A sharper decline could revive recession fears and signal a softer inflation outlook, supporting a dovish Fed rate path. Conversely, a surprise rise in sales could signal a resilient US economy, a potential pickup in inflation, and a more hawkish Fed stance.

On Friday, May 16, the Michigan Consumer Sentiment Index will also be crucial. Economists expect the Index to fall from 52.2 in April to 52.0 in May. Waning consumer sentiment could impact spending, while a rebound in confidence may indicate a pickup in consumption.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Upbeat economic data and hawkish Fed guidance could drive USD/JPY toward 150.
• Bearish US Dollar Scenario: Weaker-than-expected US economic data and a dovish Fed policy outlook data may pull USD/JPY toward 140.

Short-term Forecast:

This week’s USD/JPY trajectory will depend on trade sentiment, central bank forward guidance, and key macro data.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades below the 50-day and 200-day EMAs, preserving a bearish setup.

A move above the 50-day EMA could open the door to testing resistance at the April 9 high of 148.280. Sustained buying pressure may enable the bulls to target the 149.358 resistance level.

On the downside, a drop below 142.5 could expose 140 and the September 2024 low of 139.576.

The 14-day Relative Strength Index (RSI) stands at 52.58, suggesting room for further gains, with overbought territory beginning above RSI 70.

Final Thoughts

With pivotal trade updates, central bank commentary, and economic data in play, USD/JPY may face heightened volatility. Traders should monitor trade headlines and macro signals closely.

For a deeper dive, explore our technical analysis here.