USD/JPY Forecast: Producer Prices, the BoJ, and the US CPI Report

Producer Prices, the Bank of Japan, and Interventions

On Wednesday, producer price figures from Japan put the investor focus on the USD/JPY.

Producer prices increased by 0.8% year-on-year in March after rising by 0.6% in February. Economists forecast producer prices to increase by 0.8% year-on-year.

Month-on-month, producer prices rose by 0.2% after a 0.2% increase in February. Economists expected producer prices to increase by 0.3%.

The upward trend in producer prices could influence the Bank of Japan interest rate trajectory. Producers raise prices in an increasing demand environment, passing prices onto consumers. A pickup in demand-driven inflation could enable the BoJ to move away from zero interest rates to manage price stability.

Later in the Asian session, Bank of Japan Governor Kazuo Ueda is on the calendar to speak. Views on demand-driven inflation and interest rates could move the dial.

Moreover, investors should monitor Japanese government intervention threats that could impact the USD/JPY.

US Economic Calendar: US CPI Report and FOMC Member Comments

On Wednesday, the US CPI Report warrants investor attention. Hotter-than-expected inflation figures could impact investor bets on a June Fed rate cut. Economists forecast the US annual inflation rate to rise from 3.2% to 3.4% in March. However, economists expect the core inflation rate to ease from 3.8% to 3.7%.

After the better-than-expected Jobs Report, higher inflation rates may delay the timing of a Fed interest rate cut.

A higher-for-longer rate path could raise borrowing costs, impacting disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation. Moreover, a higher-for-longer rate path could offset the effects of tighter labor market conditions on wage growth.

With the US CPI Report in focus, investors should monitor FOMC member commentary. Reactions to the US CPI Report could move the dial. FOMC members Michelle Bowman and Austan Goolsbee are on the calendar to speak.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on the US CPI Report and the Japanese government. Higher US consumer prices could sink bets on a June Fed rate cut and tilt monetary policy divergence toward the US dollar. However, the Japanese government could limit USD/JPY gains with intervention threats.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the April 3 high of 151.951 could support a breakout from the 152 barrier.

Bank of Japan Governor Ueda, the US CPI Report, and FOMC member chatter need consideration.

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

The 14-day RSI at 63.35 suggests a USD/JPY move through the 152 level before entering overbought territory.