USD/JPY Forecast: Intervention Risks, BoJ Pivot Hints, and Fed Tones Guide Prices

USD/JPY Movement on Friday

The USD/JPY gained 0.20% on Friday. Partially reversing a 0.42% loss from Thursday, the USD/JPY ended the day at 150.185. The USD/JPY fell to a low of 149.821 before rising to a Friday session high of 150.643.

Japan Core Machinery Orders

On Monday, core machinery orders for Japan garnered investor interest after the Q4 GDP numbers. Core machinery orders increased by 2.7% in December, partially reversing a 4.9% slide from November. Economists forecast core machinery orders to increase by 2.5%.

Year-over-year, core machinery orders declined by 0.7% after being down 5.0% year-over-year in November. Economists expected core machinery orders to fall by 1.4%.

The latest figures could influence the Bank of Japan’s plans to exit from negative rates. After falling into a technical recession in Q4, an improving demand environment could enable the BoJ to begin considering a pivot.

However, wage growth and demand-driven inflation remain the areas of focus. Significantly, bets on an April BoJ pivot from negative rates linger despite the Q4 GDP numbers.

Beyond the economic data, investors must monitor intervention threats and Bank of Japan chatter. Intervention threats could impact the USD/JPY, while dovish BoJ commentary could affect demand for the Yen.

US Economic Calendar: Fed Speakers in Focus

On Monday, investors must consider FOMC member commentary. Reactions to the recent inflation reports and views on interest rate cuts warrant investor attention.

Support to delay rate cuts until H2 2024 could drive buyer demand for the USD/JPY.

The inflation numbers from last week reduced the market bets on Fed rate cuts in March and May. A shift in sentiment toward the Fed rate path would move the dial.

According to the CME FedWatch Tool, the probability of a 25-basis point June Fed rate cut increased from 41.9% to 55.3% last week. However, the likelihood of a March Fed rate cut fell from 16.0% to 10.0%. The chances of a 25-basis point May rate cut declined from 52.2% to 28.0%.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the Bank of Japan and Fed commentary. Rising bets on a Bank of Japan pivot from negative rates could tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the 150.201 resistance level would support a move toward the 151.889 resistance level.

Bank of Japan commentary, intervention warnings, and Fed speakers need investor consideration.

However, a break below the 150 handle would support a fall to the 148.405 support level.

The 14-day RSI at 63.17 suggests a USD/JPY move to the 151 handle before entering overbought territory.

4-Hourly Chart

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

A USD/JPY move above the 150.201 resistance level would bring the 151.889 resistance level into play.

However, a break below the 50-day EMA would support a fall toward the 148.405 support level.

The 14-period 4-hour RSI at 52.42 suggests a USD/JPY return to the 151 handle before entering overbought territory.