USD/JPY Forecast: BoJ’s Rate Hike Talks and the Yen’s Outlook

The Bank of Japan and a Weaker Japanese Yen

On Monday, investors should monitor Bank of Japan commentary. Views on the economic outlook, inflation, and the timing of an interest rate hike could influence buyer demand for the USD/JPY.

Bank of Japan Governor Kazuo Ueda recently warned the BoJ would increase interest rates if inflation continued rising. It was the first discussion about raising interest rates since the BoJ exited negative rates in March.

The weaker Japanese Yen could cause a spike in import costs and inflation. A pickup in inflationary pressures may impact household spending and the Japanese economy.

On Friday, inflation numbers from Tokyo will give the BoJ a glimpse of the effects of the weaker Yen on consumer prices. The Bank of Japan will also deliver its April monetary policy decision on Friday. Hotter-than-expected inflation numbers could trigger rate hike discussions. More hawkish comments could ease pressure on the Japanese government to intervene to bolster the Yen.

US Economic Calendar: Chicago Fed National Activity Index

The Chicago Fed National Activity Index (CFNAI) will garner investor attention on Monday. Economists expect the CFNAI to increase from 0.05 to 0.09 in April. Better-than-expected numbers would support market expectations that the US could avoid a recession. However, higher-than-expected numbers may further impact investor bets on multiple 2024 Fed rate cuts.

A robust US economy would support tight labor market conditions and wage growth. Upward trends in wage growth could increase disposable income. Higher disposable income levels could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

According to the CME FedWatch Tool, the chances of the Fed holding interest rates at 5.5% in September increased from 23.5% to 35.5% in the week ending April 19.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on inflation numbers from Japan and the US. Hotter-than-expected inflation numbers from Japan could raise investor bets on a BoJ rate hike. Sticky US inflation numbers could further delay the timing of a Fed rate cut. A narrowing in the interest rate differentials would pressure the USD/JPY pair.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the April 16 high of 154.787 would give the bulls a run at the 155 handle.

Bank of Japan commentary and the CFNAI need investor consideration.

Conversely, a USD/JPY fall through the 153.5 handle could bring the 151.685 support level into play.

The 14-day RSI at 74.80 shows the USD/JPY in overbought territory. Selling pressure could intensify at the April 16 high of 154.787.