USD/JPY Forecast: Intervention Threats, BoJ Action, and Fed Eyes on CPI

Average Cash Earnings and the Current Account Surplus

On Monday, average cash earnings and current account numbers from Japan put the USD/JPY in focus.

Average cash earnings increased 1.8% year-on-year in February after advancing 2.0% in January. Economists forecast average cash earnings to increase by 1.4%. However, the better-than-expected wage growth figures failed to boost buyer demand for the Yen.

The February numbers preceded the March wage hikes that enabled the Bank of Japan to exit negative rates. Wage hikes in March could fuel consumer spending and demand-driven inflation. The Bank of Japan may respond with another rate hike to manage inflation.

Current account data from Japan fell short of forecasts, influencing the buyer appetite for the Yen. The surplus widened from ¥438.2 billion to ¥2,644.2 billion in February. Economists expected a current account surplus of ¥3,112.5 billion.

While the numbers warranted investor attention, intervention threats and BoJ chatter also need monitoring. The USD/JPY remains within the intervention zone. A move nearer to the 152 barrier could force the Japanese government to issue more intervention warnings. Moreover, BoJ views on the recent services PMI and the inflation outlook could move the dial.

US Economic Calendar: US Consumer Inflation Expectations

It is inflation week for the US dollar. On Monday, consumer inflation expectations will be in focus. Higher-than-expected consumer inflation expectations could affect investor bets on a June Fed rate cut.

Economists forecast consumer inflation expectations to fall from 3.0% to 2.9% in March.

A higher-for-longer Fed rate path may increase borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

After the hotter-than-expected US Jobs Report, sticky inflation could affect the median Fed Funds Rate projection. The FOMC projected a median 2024 FFR of 4.6% in March.

With US inflation in the spotlight this week, investors must consider FOMC member speeches. Views on inflation and the timeline for a first interest rate cut could move the dial. FOMC member Neel Kashkari is on the calendar to speak. Last week, Kashkari said that sticky inflation could force the Fed to leave interest rates at 5.5% through 2024.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US CPI Report and Fed chatter. A hotter-than-expected US CPI Report could close the door on a June Fed rate cut. Accompanying hawkish Fed commentary may tilt monetary policy divergence further toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY hold above the 151.685 resistance level could give the bulls a run at the 152 handle. The USD/JPY must break down resistance at the Wednesday high of 151.951.

Intervention threats, the BoJ, US consumer inflation expectations, and Fed chatter need consideration.

Conversely, a USD/JPY break below the 151.685 resistance level could bring the 50-day EMA into play. A fall through the 50-day EMA would give the bears a run at the 148.529 support level.

The 14-day RSI at 63.28 suggests a USD/JPY move through the 152 barrier before entering overbought territory.