USD/JPY Forecast: Rises Amidst BOJ’s Dovish Stance, Likelihood of Fed Interest Rate Hike in May

Highlights

• Bank of Japan maintains ultra-low interest rates
• Short-term inflation expectations increase
• Wall Street earnings anticipate May rate hike

Overview

On Monday, the Dollar/Yen rose due to the Bank of Japan’s persistent dovish stance and its maintenance of ultra-low interest rates. Additionally, the market’s anticipation of a potential interest rate hike in May was further reinforced by the impressive earnings of Wall Street banks, along with the persistence of core U.S. retail sales and a rise in short-term inflation expectations.

At 08:13 GMT, the USD/JPY is trading 133.869, up 0.103 or +0.08%. This is down from an intraday high of 134.215.

US Core Retail Sales Hold Strong, May Interest Rate Hike More Likely

Although overall U.S. retail sales fell in March, core retail sales (excluding certain categories) only decreased by 0.3%, according to Friday’s data release. As a result, money markets are now predicting an 81% likelihood of a 25 basis point interest rate increase by the Federal Reserve in May, up from 69% last week. Additionally, short-term inflation expectations have risen, with the University of Michigan reporting a 4.6% one-year inflation expectation for April. The yields on U.S. Treasuries also rose, likely influenced by hawkish statements from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic.

Japan’s Central Bank to Maintain Ultra-Low Interest Rates for Now

Japan’s new central bank Governor Kazuo Ueda has confirmed that the country will continue to keep interest rates ultra-low, at least for the time being. Ueda has hinted that the massive stimulus of his predecessor will eventually be phased out, but discussions over when and how to shift away from this policy will take time. Ueda reassured policymakers that any change will not happen quickly, given that inflation in Japan is not high and is expected to fall below the Bank of Japan’s target later this year. The remarks signal the bank’s desire to avoid a repeat of January when long-term interest rates rose due to expectations of a swift pivot in policy.

Technical Analysis

From a technical view, according to the daily chart, WTI Oil is trading above the pivot at $133.4428, while the RSI indicator is positive. The technicals appear to be in favor of an upside and a potential test of that $137.2452 price. If the price does not reach its peak and instead has a downward trend, we may witness a decline toward the $128.9727 region.

Resistance and Support Lines: 

From a technical view, according to the daily chart, the USD/JPY is trading above the pivot at $133.4428, while the RSI indicator is positive. The technicals appear to be in favor of an upside and a potential test of that $137.2452 price. If the price does not reach its peak and instead has a downward trend, we may witness a decline toward the $128.9727 region.

Short-Term Outlook

Based on today’s early results, the short-term outlook for the USD/JPY appears to be positive, as the dollar has risen against the yen due to the Bank of Japan’s dovish stance and the anticipation of a potential interest rate hike by the Federal Reserve in May.

For a look at all of today’s economic events, check out our economic calendar.