USD/JPY Forecast: Balancing Consumer Confidence and Intervention Risks

Consumer Confidence, Machine Tool Orders, and Interventions

On Tuesday, consumer confidence and machine tool orders may influence buyer appetite for the USD/JPY.

An improving consumer confidence environment could signal a pickup in consumer spending. Consumer spending may fuel demand-driven inflation and raise expectations of a Bank of Japan move from zero rates. A higher interest rate environment could raise borrowing costs and reduce disposable income.

Downward trends in disposable income could curb spending and dampen demand-driven inflation.

Economists forecast the Consumer Confidence Index to increase from 39.1 to 40.0 in March. The survey coincided with the outcome of the spring wage negotiations. Wage hikes enabled the BoJ to raise interest rates for the first time in 17 years.

Consumer confidence figures could be pivotal for the outlook on private consumption. However, machine tool orders also warrant investor attention. The BoJ will likely be more amenable to moving away from zero interest rates in an improving demand environment. The macroeconomic backdrop may also influence consumer spending habits and inflation trends.

Economists forecast machine tool orders to decline by 5.0% year-on-year in March. Machine tool orders were down 8.0% in February.

Beyond the numbers, Japanese government threats of an intervention could also impact buyer demand for the USD/JPY. The markets expect 152 to be the line in the sand for the Japanese government.

US Economic Calendar: US RCM/TIPP Economic Optimism Index and the Fed

The RCM/TIPP Economic Optimism Index will draw investor interest on Tuesday. Recent economic indicators raised expectations of the US avoiding an economic recession. The US Jobs Report impacted investor bets on a June Fed rate cut. Improving sentiment toward the economy could align with fading bets on a June rate cut.

Economists forecast the RCM/TIPP Economic Optimism Index to fall from 43.5 to 43.0 in April. A reading below 50 indicates pessimism toward the economic outlook.

Beyond the headline figure, investors should consider the sub-components, including the Personal Financial Outlook. The sub-index gives the markets a US consumer assessment of their finances over the next six months. Upward trends in the Personal Financial Outlook Index could signal an upswing in consumer spending.

Nevertheless, investors should monitor FOMC member chatter on Tuesday as investors turn their attention to US inflation trends. Views on the timing of a Fed interest rate cut could impact buyer demand for the USD/JPY.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on the US CPI Report and the Japanese government. A hotter-than-expected US CPI Report could sink investor bets on a June Fed rate cut. Japanese government threats to bolster the Yen with interventions in the Forex markets could continue to leave the USD/JPY short of 152.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the April 3 high of 151.951 could support a break above the 152 barrier.

Consumer confidence, machine tool order numbers, and intervention threats need consideration before the US session.

Conversely, a USD/JPY fall through the 151.685 resistance level could signal a drop to the 50-day EMA. A break below the 50-day EMA would bring the 148.529 support level into play.

The 14-day RSI at 63.99 indicates a USD/JPY break above the 152 level before entering overbought territory.