USD/JPY Forecast: BoJ Speech and Consumer Confidence to Influence Yen Outlook

The Bank of Japan and Consumer Confidence

On Wednesday (May 29), the Bank of Japan could influence buyer demand for the USD/JPY. Board Member Seiji Adachi is on the calendar to speak. BoJ support for a 2024 interest rate hike would need consideration.

This week, Bank of Japan Governor Kazuo Ueda and Deputy Governor Uchida raised the chances of a 2024 rate hike. Nevertheless, interest rate differentials could remain firmly in favor of the US dollar if the BoJ delivers a single rate hike.

While the BoJ will need consideration, consumer confidence numbers from Japan also warrant investor attention.

Economists forecast the Consumer Confidence Index to increase from 38.3 to 38.9 in May. Upward trends in consumer sentiment could signal a pickup in consumer spending. In turn, consumer spending may fuel demand-driven inflation and allow the BoJ to raise interest rates.

However, the Bank of Japan will need households to increase spending. The Japanese economy contracted in Q1, with private consumption contributing. Despite the spring wage hikes, recent household spending figures have disappointed.

US Economic Calendar: FOMC Member Speeches in Focus

Later in the session, FOMC member speakers need monitoring amidst falling investor bets on a September Fed rate cut.

FOMC member John Williams is on the calendar to speak on Wednesday. Support to further delay interest rate cuts could drive buyer demand for the US dollar. Recent economic data supported a more hawkish Fed rate path. However, the Personal Income and Outlays Report (May 31) could prove pivotal for the Fed and the Greenback.

An unexpected increase in consumer confidence reduced bets on a September rate cut further on Tuesday (May 28). The CB Consumer Confidence Index increased from 97.0 to 102.0.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September rose from 50.2% to 54.3% on Tuesday.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on consumer sentiment figures from Japan and inflation numbers from Japan and the US. However, BoJ and Fed forward guidance also needs consideration. Hawkish Fed chatter left monetary policy divergence firmly tilted toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the 157.5 handle would support a return to 158. A break above 158 could bring the April 29 high of 160.209 into play.

Consumer confidence figures from Japan and central bank commentary need consideration.

Conversely, a USD/JPY break below the 156.500 handle could give the bears a run at the 50-day EMA. A drop below the 50-day EMA could signal a fall toward the 151.685 support level.

The 14-day RSI at 62.07 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.