USD/JPY Forecast: BoJ Eyes Shunto Negotiations, Fed Speakers on Radar

USD/JPY Movement on Friday

The USD/JPY gained 0.06% on Friday. Partially reversing a 0.47% loss from Thursday, the USD/JPY ended the Friday session at 150.060. The USD/JPY rose to a high of 150.717 before falling to a Friday low of 149.914.

Capital Spending Weakened in Q4 2023

On Monday, capital spending data from Japan garnered investor interest. Capital spending increased by 16.4% year-on-year in Q4 after rising by 3.4% in Q3. Economists forecast capital spending to increase by 1.9%.

The stronger-than-expected numbers may also draw the interest of the Bank of Japan. In Q4, the Japanese economy unexpectedly fell into a technical recession. A jump in capital spending would signal an improving business sentiment environment that may influence consumer confidence and household spending.

A pickup in household spending could fuel demand-driven inflation and supports bets on an April BoJ pivot from negative rates.

However, the Shunto spring wage negotiations remain the focal point for the BoJ.

With the markets focused on the BoJ, BoJ commentary also needs consideration. Last week, BoJ Governor Kazuo Ueda warned that a sustainable return to the inflation target remained elusive. Nonetheless, Governor Ueda highlighted the significance of the Shunto on exit plans.

US Economic Calendar: Fed Speakers in Focus

On Monday, FOMC member Patrick Harker is on the calendar to speak. In February, Harker said he needed a couple more meetings to gain confidence about inflation sustainably returning to target. The outlook aligned with market bets on a June Fed rate cut. A deviation from previous comments needs consideration.

Recent US economic indicators, including inflation, supported investor bets on a June rate cut. However, the US labor market remains tight. Tight labor market conditions support wage growth and raise disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

Embedded inflation remains a risk for the US economy. A higher-for-longer Fed rate path could reduce disposable income and curb consumer spending. While likely to affect the US economy, eliminating the risk of embedded inflation may remain a priority for the Fed. The dynamics highlight the need for confidence amongst FOMC members that inflation is sustainably returning to target.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on Shunto wage negotiations and the US Jobs Report. A marked increase in Japanese wages and weaker US labor market conditions could tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the 150.201 resistance level would bring the 151.889 resistance level into play.

Bank of Japan and US Fed chatter need consideration.

However, a drop below the 149.500 handle would give the bears a run at the 148.405 support level.

The 14-day RSI at 56.65 indicates a USD/JPY move to the 151 handle before entering overbought territory.

4-Hourly Chart

The USD/JPY remained below the 50-day EMA while holding above the 200-day EMA, affirming bearish near-term but bullish longer-term price signals.

A USD/JPY move through the 150.201 resistance level and 50-day EMA would give the bulls a run at the 151.889 resistance level.

However, a fall below the 149.500 handle would bring the 200-day EMA into view.

The 14-period 4-hour RSI at 43.33 suggests a USD/JPY fall to the 200-day EMA before entering oversold territory.