USD/JPY Forecast: Intervention Threats Loom as USD/JPY Holds Ground

USD/JPY Movement on Monday

The USD/JPY ended the Monday session flat at 151.406. On Friday, the USD/JPY declined by 0.13%. The USD/JPY fell to a low of 151.050 before rising to a Monday session high of 151.544.

Interventions and the Bank of Japan Rate Path

On Tuesday, the Bank of Japan and the Japanese Government will remain in the spotlight. Threats of an intervention to bolster the Yen failed to return the USD/JPY pair to sub-150.

However, the USD/JPY had a more range-bound session, ticking one of the boxes for Masato Kanda, Japan’s vice Finance Minister for International Affairs. On Monday, Kanda stated that excessive moves were of more concern than levels.

The possible need for intervention stems from the anticipated Bank of Japan rate path. Despite hiking rates for the first time in 17 years, the USD/JPY hovers below the 152 handle.

Bank of Japan Governor Kazuo Ueda warned that monetary policy would remain accommodative after exiting negative rates. The BoJ may leave interest rates at zero until recent wage hikes sustainably translate into demand-driven inflation.

At zero, interest rate differentials remain firmly in favor of the US dollar. Moreover, carry trades could also fuel further USD/JPY gains. In a USD/JPY carry trade, investors borrow Yen, with a lower interest rate, and buy US dollars that give a higher interest rate. Traders can leverage and earn sizable amounts on carry trades.

However, the Yen could materially strengthen if the BoJ takes a more aggressive interest rate trajectory. A significantly stronger Yen may dampen the effects of an exit from negative rates on inflation. The Yen would have greater purchasing power, offsetting the influence of demand on prices.

Intervention chatter and Bank of Japan views on Yen strength versus inflation need consideration.

There are no stats from Japan to consider on Tuesday as investors await the next round of inflation numbers on Friday.

US Economic Calendar: Core Durable Goods Orders and Consumer Confidence.

On Tuesday, core durable goods orders and consumer confidence numbers will draw investor interest.

After mixed US numbers on Monday, a larger-than-expected increase in core durable goods orders could support expectations of a soft landing. Economists forecast core durable goods orders to increase by 0.4% after falling by 0.3% in January.

The markets will have one eye on the US macroeconomic environment. However, US private consumption and inflation remain the focal point.

Upward trends in consumer confidence could fuel consumer spending and demand-driven inflation. A marked improvement could force the Fed to delay an interest rate cut to impact disposable income and curb spending.

Economists forecast the CB Consumer Confidence Index to remain at 106.7 in March.

Other stats include house price data. An unexpected jump in house prices could draw the attention of the Fed. Upward trends in house prices could lead to higher rental leases, another focal point for the Fed.

Beyond the numbers, investors must track Fed chatter. Views that deviate from the FOMC Economic Projections need consideration.

Short-term Forecast

Near-term trends for the USD/JPY will likely depend on interventions, central bank speeches, and inflation numbers. Inflation numbers from the US may impact the USD/JPY more. The recent wage hikes in Japan are unlikely to impact inflation trends yet. In contrast, a resilient US economy leaves the Fed sensitive to persistent inflationary pressures.

USD/JPY Price Action

Daily Chart

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

A USD/JPY move through the 151.685 resistance level would give the bulls a run at the 152 handle.

Intervention threats, central bank commentary, and US economic data warrant investor attention.

Conversely, a USD/JPY break below the 150 handle could signal a fall toward the 50-day EMA and the 148.529 support level.

The 14-day RSI at 64.63 indicates a USD/JPY advance to the 152 handle before entering overbought territory.