USD/JPY Forecast: BoJ’s Tamura Naoki, the Zero Rate Path, and Interventions

Bank of Japan Board Member Tamura in the Spotlight

On Wednesday, the Bank of Japan will be in the spotlight. Bank of Japan Board Tamura Naoki is on the calendar to speak. Significantly, Tamura Naoki will be the first board member to deliver a speech since the Bank of Japan exited negative rates.

The USD/JPY retook the 151 handle in response to the Bank of Japan pivot from negative rates. Forward guidance signaled the BoJ could hold interest rates at zero over the remainder of 2024.

A different outlook on the interest rate path would move the dial. Tamura Naoki will speak at a tumultuous time for the Japanese Yen. The Japanese government has jawboned the Yen for several sessions to prevent further weakening. Suggestions of tightening monetary policy further in H1 2024 could ease selling pressure on the Yen.

Investors should consider comments about interest rate hikes and the possible effects on consumer price inflation. A stronger Yen could counter the influence of rising demand on prices stemming from wage hikes. The net outcome could be a zero-rate path for the Bank of Japan.

However, interest rate differentials remain another consideration. Interest rate differentials favor carry trades to the US dollar, which could continue supporting the USD/JPY at current levels.

In carry trades, investors borrow from the lower interest rate currency, in this case, the Yen. With leverage, traders can significantly enhance earnings by purchasing a currency with a higher interest rate, in this case, the US dollar. While traders enhance earnings, the Yen weakens on selling pressure.

US Economic Calendar: Fed Speakers Pre-Inflation Numbers

On Wednesday, investors must consider Fed commentary ahead of the heavily anticipated inflation numbers.

Recent Fed speeches created uncertainty regarding the timing of a Fed interest rate cut. Deviation from the median FOMC Economic Projections for the Fed Funds Rate forced investors to recalibrate bets on an H1 2024 Fed rate cut.

FOMC member calls for a more cautious approach to easing monetary policy could further reduce investor bets on an H1 2024 Fed rate cut.

FOMC member Christopher Waller is on the calendar to speak. In February, Waller was in no rush to cut interest rates, preferring to digest more inflation numbers. A more decisive view on the Fed interest rate path could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on the US inflation numbers. Hotter-than-expected US inflation numbers could railroad an H1 2024 Fed rate cut. A higher-for-longer Fed rate path could fuel demand for the US dollar on interest rate differentials. However, intervention threats may continue to limit the upside for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 151.685 resistance level would support a move to the 152 handle.

Bank of Japan chatter and intervention threats warrant investor consideration before the US session.

However, a USD/JPY fall through the 151 handle could signal a slide toward the 50-day EMA and the 148.529 support level.

The 14-day RSI at 65.35 suggests a USD/JPY move to the 152 handle before entering overbought territory.