USD/JPY Forecast: The Bank of Japan and US Manufacturing in Focus

Highlights

• The USD/JPY gained 0.33% on Friday, ending the session at 148.136.
• Inflation numbers from Japan and US economic indicators drove buyer demand for the USD/JPY.
• On Monday, the Bank of Japan and the US manufacturing sector will be in focus.

USD/JPY Movement on Friday

The USD/JPY gained 0.33% on Friday. Following a 0.11% rise on Thursday, the USD/JPY ended the day at 148.136. On Friday, the USD/JPY fell to a low of 147.399 before rising to a Friday high of 147.208.

The Bank of Japan under the Spotlight

On Monday, the Bank of Japan will be in focus. The markets expect the Bank of Japan to exit negative interest rates in 2024. However, the timing of a pivot from negative rates remains unclear.

Last week, softer-than-expected inflation numbers for Tokyo reduced pressure on the BoJ to make a near-term move. The annual inflation rate eased from 2.4% to 1.6%, with core inflation down from 2.1% to 1.6%.

However, wage growth and household spending are the prerequisites for a BoJ policy move away from ultra-loose. The outcome of wage negotiations in March could be a signal for the BoJ and the markets. A marked increase in wages could fuel household spending and demand-driven inflation. Demand-driven inflation would give the BoJ the green light to exit negative rates to support price stability.

There are no economic indicators from Japan on Monday.

US Economic Calendar: US Manufacturing in Focus

On Monday, the Dallas Fed Manufacturing Index will garner investor interest. Economists forecast the Dallas Fed Manufacturing Index to fall from -9.3 to -23.0 in January. Weaker-than-expected numbers could influence investor expectations of a soft landing.

The manufacturing sector accounts for less than 30% of the US economy. However, cracks in the economy could impact the USD/JPY. Recent manufacturing sector data has sent mixed signals.

Last week, the US CB Leading Index highlighted a weaker manufacturing sector, while the US Manufacturing PMI unexpectedly signaled a return to expansion.

Short-term Forecast

Near-term trends for the USD/JPY hinge on US labor market data, the Fed, and the Bank of Japan. A more hawkish-than-expected Fed, better-than-expected US labor market stats, and a cautious BoJ could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY move through the 148.405 resistance level would give the bulls a run at the 150.201 resistance level.

On Monday, Bank of Japan commentary and the US economic calendar warrant investor attention.

However, a break below the 147.5 handle would support a fall to the 146.649 support level. A fall through the 146.649 support level would bring the 50-day EMA into play.

The 14-day RSI at 62.47 indicates a USD/JPY move to the 149 handle before entering overbought territory.

4-Hourly Chart

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

A USD/JPY break above the 148.405 resistance level would support a move to the 150.201 resistance level.

However, a fall through the 50-day EMA would bring the 146.649 support level into play.

The 14-period 4-hour RSI at 54.63 indicates a USD/JPY move to the 149 handle before entering overbought territory.