USD/JPY Forecast: The Bank of Japan, US Retail Sales, and the Fed in Focus

Highlights

• The USD/JPY rallied 1.03% on Tuesday, ending the session at 147.178.
• Falling bets on a March Fed rate cut and easing expectations of a BoJ pivot from negative rates drove buyer demand for the USD/JPY.
• On Wednesday, investors will focus on BoJ chatter, US retail sales, and Fed speakers.  

USD/JPY Movement on Tuesday

The USD/JPY rallied 1.03% on Tuesday. Following a 0.55% gain on Monday, the USD/JPY ended the session at 147.178. The USD/JPY fell to a low of 145.582 before rising to a session high of 147.310.

Tankan Index and the Bank of Japan

On Wednesday, the Reuters Tankan Index garnered investor interest. The monthly survey of private sector firms is a leading indicator of the quarterly Tankan surveys. In January, the Reuters Tankan Survey fell from +12 to +6. Economists forecast the Reuters Tankan Survey to decline to +11.

The larger-than-expected decline could give the Bank of Japan more reason to delay an exit from negative rates.

However, wage growth negotiations in March remain the focal point. Solid annual wage growth could incentivize the BoJ to pivot from negative interest rates.

US Retail Sales and FOMC Member Speeches

On Wednesday, US retail sales warrant investor attention. Economists forecast retail sales to increase by 0.4% in December versus a rise of 0.3% in November. A more marked increase in retail sales could further ease bets on a March Fed rate cut.

Upward trends in consumer spending could fuel demand-driven inflation. A higher-for-longer Fed rate path could reduce disposable income and curb consumer spending. Downward trends in consumer spending would dampen demand-driven inflation.

However, investors must monitor FOMC member commentary. FOMC members John Williams, Michelle Bowman, and Michael Barr are on the calendar to speak. References to inflation, the economy, and interest rates need consideration.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on inflation numbers from Japan, US retail sales, and central bank commentary. Softer inflation numbers from Japan would ease bets on a BoJ pivot from negative rates. Hawkish Fed comments and a pickup in consumption would also influence buyer appetite for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 147.500 handle would give the bulls a run at the 148.405 resistance level.

On Wednesday, investors will focus on Bank of Japan commentary, US retail sales, and Fed speakers.

However, a break below the 146.649 support level would bring the 50-day EMA into play. A fall below the 145.500 handle would give the bears a run at the 144.713 support level.

The 14-day RSI at 62.15 indicates a USD/JPY move to the 148.405 resistance level before entering overbought territory.

4-Hourly Chart

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

A USD/JPY return to the 148 handle would support a move to the 148.405 resistance level.

However, a break below the 146.649 support level would bring the 50-day and 200-day EMAs into view.

The 14-period 4-hour RSI at 71.94 shows the USD/JPY in overbought territory. Selling pressure could intensify at the 147.500 handle.