USD/JPY Forecast: BoJ’s Stance on the Yen, Government Intervention Threats

The Bank of Japan, the Japanese Government, and the Japanese Yen

On Monday (April 29), the Japanese Government and the Bank of Japan could influence the USD/JPY.

On Friday, investors reacted to the Bank of Japan monetary policy decision and US economic indicators. The USD/JPY surged 1.69% to end the session at 158.283. The markets previously drew an intervention line in the sand at 155. However, concerns about the likely lasting effectiveness of an intervention to bolster the Yen likely left the government on the sidelines.

A USD/JPY move toward 160 could be a step too far for the BoJ and the Japanese government.

While the Japanese government could raise the threat levels of an intervention, the BoJ also needs consideration.

On Friday (April 26), Bank of Japan Governor Kazuo Ueda discussed the impact of a weaker Yen on the BoJ’s rate path. Governor Ueda pointed out that the BoJ could adjust monetary policy if FX movements influence underlying inflation.

A weaker Japanese Yen raises import costs and consumer prices. Upward trends in inflation could impact household spending and the Japanese economy. Monetary policy adjustments would strengthen the Japanese Yen, reduce import costs, and restore price stability.

While the BoJ and Japanese government need consideration, there are no stats from Japan. The markets are closed for Showa Day.

US Economic Calendar: Dallas Fed Manufacturing Index

Later in the Monday session, the Dallas Fed Manufacturing Index will garner investor attention.

Economists forecast the Index to increase from -14.4 to -11.0 in April. Better-than-expected numbers could raise expectations of the US economy to avoid a recession. Nevertheless, the numbers are unlikely to influence the Fed interest rate trajectory.

The manufacturing sector contributes less than 30% to the US economy.

However, US labor market data and service sector PMI numbers will influence investor bets on a September Fed interest rate trajectory. The US Jobs Report and ISM Services PMI are out on Friday (May 3).

Before the reports, the markets can recalibrate their expectations of H2 2024 Fed rate cuts on Wednesday (May 1). The FOMC interest rate decision and press conference will warrant investor attention.

After the better-than-expected US Personal Income and Expenditures Report, the markets remain divided about a September Fed rate cut. According to the CME FedWatch Tool, the probability of the Fed leaving interest rates at 5.50% stood at 41.8% today, up from 31.6% on April 19.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the Bank of Japan and the Japanese government. Hawkish chatter from the BoJ and intervention threats from the Japanese government could pressure the USD/JPY. However, investors should consider US labor market data and the FOMC press conference.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the April 26 high of 158.437 would support a move to the 160 handle.

Bank of Japan commentary, Japanese government intervention threats, and the Dallas Fed Manufacturing Index need consideration.

Conversely, a USD/JPY drop below the 157.5 handle could support a fall toward the 50-day EMA and the 151.685 support level.

The 14-day RSI at 86.40 shows the USD/JPY in overbought territory. Selling pressure may intensify if the USD/JPY approaches the April 26 high of 158.437.