USD/JPY Forecast: BoJ Chatter, the US Labor Market, and Powell in Spotlight

USD/JPY Movement on Tuesday

The USD/JPY declined by 0.32% on Tuesday. Reversing a 0.31% gain from Monday, the USD/JPY ended the session at 150.039. The USD/JPY rose to a high of 150.546 before falling to a Tuesday session low of 149.701.

Key Focus: Bank of Japan Commentary and Wage Growth

On Wednesday, investors must consider Bank of Japan comments about exiting negative interest rates. Inflation figures for Tokyo supported investor bets on an April pivot from negative rates. The core annual inflation rate accelerated from 1.8% to 2.5% in February.

However, Shunto-related updates also need consideration. The Bank of Japan requires a positive outcome to spring wage negotiations to consider exiting negative rates. A marked increase in wages could fuel household spending and demand-driven inflationary pressures. The BoJ would exit negative rates to ensure price stability.

On Tuesday, Deputy Chief Cabinet Secretary Hideki Murai reportedly said the economy must move from one that focuses on cost cuts to a positive cycle supporting growth and higher wages. Murai added that signs of a positive cycle are appearing.

US Economic Calendar: Labor Markets and Fed Chair Powell

On Wednesday, ADP employment and JOLTs Job Openings will draw investor attention.

Economists forecast the ADP to report a 150k increase in employment in February. The ADP reported a 107k increase in January.

Economists expect JOLTs Job Openings to fall from 9.026 million to 8.900 million in January. A more marked decline in Job Openings could signal a deterioration in labor market activity. However, investors must consider quit rates. Workers are less likely to leave jobs in an uncertain labor market environment.

Weaker labor market conditions could impact wage growth and reduce disposable income. A downward trend in disposable income could curb consumer spending and dampen demand-driven inflation. A softer inflation environment may enable the Fed to cut interest rates.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US labor market data and Fed Chair Powell. The markets expect the Fed to cut rates and the BoJ to exit negative rates in H1 2024. A more hawkish-than-expected Fed rate path could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 150.201 resistance level would bring the 151.889 resistance level into play.

BoJ chatter, US labor market data, and Fed Chair Powell need consideration.

However, a break below the 149.500 handle would give the bears a run at the 50-day EMA and the 148.405 support level.

The 14-day RSI at 54.37 indicates a USD/JPY move to the 151.889 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY hovered below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A USD/JPY break above the 150.201 resistance level and the 50-day EMA would support a move toward the 151.889 resistance level.

However, a break below the 149.500 handle would bring the 200-day EMA into play.

The 14-period 4-hour RSI at 37.68 suggests a USD/JPY fall to the 200-day EMA before entering oversold territory.