USD/JPY Forecast: Fed Rate Path, Middle East News, Intervention Risks, and 155

Monetary Policy Divergence, Yield Differentials, and Carry Trades

On Tuesday, the USD/JPY could be in the hands of the Bank of Japan and the Japanese government. Expectations of a more hawkish Fed rate path leave interest rate differentials firmly favoring the US dollar. Carry trades could send the USD/JPY pairing higher.

However, intervention threats may intensify after breaching the 154 level for the first time since January 1990. A sharp decline in the Yen would increase prices for imported goods. Upward price trends for imported goods could affect household spending and the Japanese economy. Significantly, Yen trends could offset the effects of recent wage hikes and Bank of Japan monetary policy maneuvers.

There are no economic indicators from Japan for investors to consider. However, it’s important to monitor news updates from the Middle East.

US Economic Calendar: Housing Sector and Industrial Production

On Tuesday, US housing market data will garner investor attention. Economists forecast building permits to decline by 0.7% in March after rising by 2.4% in February. Moreover, economists predict housing starts to fall by 0.8% after surging 10.7% in February.

Economists consider housing sector data leading indicators for the US economy. Improving housing sector conditions could influence consumer confidence. Significantly, improving consumer confidence could fuel consumer spending and demand-driven inflation.

Following the better-than-expected US retail sales figures, improving housing sector trends could further delay the timing of a Fed rate cut. FOMC member Austan Goolsbee recently raised concerns about the ongoing effects of housing services inflation on headline inflation. Improving housing market conditions could further exasperate the effects.

According to the CME FedWatch Tool, the probability of a June Fed rate cut fell from 26.9% to 20.7% on Monday, April 15. On Monday, April 8, there was a 51.3% chance of a June Fed rate cut.

Other stats include industrial production numbers. Economists forecast industrial production to rise by 0.2% in March after increasing by 0.1% in February.

Beyond the numbers, investors should monitor FOMC member comments and news updates from the Middle East.

Short-term Forecast

Near-term trends for the USD/JPY hinge on intervention threats and the US economic calendar. Nevertheless, news updates from the Middle East could overshadow the Japanese government and the US economic calendar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the April 15 high of 154.446 could give the bulls a run at the 155 handle.

The Japanese government, the Bank of Japan, updates from the Middle East, and the US economic calendar need consideration.

Conversely, a USD/JPY fall through the 153 handle could signal a drop to the 151.685 support level.

The 14-day RSI at 76.38 shows the USD/JPY in overbought territory. Selling pressure may intensify at the April 15 high of 154.446.