USD/JPY Forecast: Fed Speakers and US Consumer Sentiment in Focus

Highlights

• The USD/JPY gained 0.09% on Friday, ending the session at 151.477.
• Bank of Japan Governor Kazuo Ueda signals and Fed Chair Powell guidance left the USD/JPY in positive territory.
• On Monday, the Fed and US consumer sentiment will be the focal points.

Friday Overview of USD/JPY Movements

The USD/JPY gained 0.09% on Friday. Following a 0.25% rise on Thursday, the USD/JPY ended the session at 151.477. The USD/JPY fell to a low of 151.221 before rising to a Thursday high of 151.603.

Bank of Japan Commitment to Ultra-Loose a USD/JPY Tailwind

Last week, Bank of Japan Governor Kazuo Ueda sent mixed signals on monetary policy goals. On Thursday, the BoJ Governor talked about proceeding cautiously on exiting the ultra-loose monetary policy stance. Governor Ueda described an exit from negative rates as a “serious challenge.”

On Wednesday, Governor Ueda reportedly played down the need for wage growth to support a Bank of Japan pivot from ultra-loose. Contrary to caution, Wednesday’s comments hinted that the BoJ is moving closer to exiting negative interest rates.

Messages from the Bank of Japan could be pivotal to near-term trends for the USD/JPY. High inflation, a weaker Yen, and rising government bond yields may prompt the BoJ to move away from ultra-loose.

There are no economic indicators from Japan for investors to consider on Monday. However, Bank of Japan commentary with the media would garner investor interest.

Fed Speakers and US Consumer Sentiment in Focus

On Monday, US consumer sentiment will remain in focus. The IBD/TIPP Economic Optimism Index warrants investor consideration on Monday.

A decline in consumer sentiment regarding the US economy could impact the demand for the US dollar. Economists forecast the IBD/TIPP Economic Optimism Index to increase from 36.3 to 40.2. An Index value below 50 indicates consumer pessimism about the economy and its outlook.

A pessimistic view of the economic outlook may impact consumer spending. A downward trend in consumer spending would affect the US economy and raise fears of a hard landing. US private consumption contributes over 60% to the US economy.

Notably, a downward trend in spending could also ease demand-driven inflation and the need for a hawkish Fed rate path.

Away from the numbers, FOMC voting member Lisa Cook is on the calendar to speak. References to inflation, the economy, and interest rates will need consideration.

Short-term Forecast

Monetary policy divergence remains tilted toward the US dollar. BoJ’s caution on exiting negative rates and a hawkish Fed Chair Powell are tailwinds for the USD/JPY. However, the US CPI Report could alter the USD/JPY trajectory. Inflation remains a focal point for the Fed and the BoJ.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY move through 151.500 would give the bulls a run at the 151.889 resistance level and 152.

Fed speeches and US consumer sentiment numbers will be the focal points. A more marked pickup in consumer sentiment and hawkish Fed speeches could bring 152 into view.

A pullback to sub-151 would bring the 150.201 support level into play.

The 14-day RSI at 61.01 indicates a USD/JPY move to the 151.889 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A USD/JPY break above 151.500 would give the bulls a run at the 151.889 resistance level and 152.

However, a fall below the 151 handle would bring the 50-day EMA and the 150.201 support level into play.

The 14-period 4-hour RSI at 65.73 suggests a USD/JPY rise to the 151.889 resistance level before entering overbought territory.