USD/JPY Forecast: Yen Faces Pressure Amid Economic Indicators and Fed Chatter

Economic Indicators from Japan Support BoJ Status Quo

Recent economic indicators from Japan have given little reason for the Bank of Japan to hike interest rates. The stats continue to drive buyer demand for the USD/JPY.

Machinery orders slid by 2.9% in May, with household spending continuing to disappoint. A weakening macroeconomic environment could affect consumer confidence and result in consumers tightening their purse strings further.

Household spending fell by 1.2% in April despite successful wage negotiations in March. The negative trend continued from Q1 2024, when private consumption fell by 0.7% quarter-on-quarter.

The Bank of Japan needs household spending and the services sector to fuel demand-driven inflation. Economic indicators must signal an improving macroeconomic environment to bolster consumer confidence and drive private consumption.

This week, trade data on Wednesday will give investors a sense of the demand environment midway through Q2 2024.

However, inflation numbers for May and preliminary Services PMI figures for June may impact the Bank of Japan rate path more on Friday.

Softer inflation and weaker service sector activity could adversely impact the Japanese Yen. A USD/JPY move toward 160 may force the Japanese government to threaten an intervention. However, a Bank of Japan rate hike may be a more realistic option if the weak Yen continues to impact import costs, consumer prices, and the Japanese economy.

There are no economic indicators from Japan for investors to consider on Tuesday (June 18). However, investors should monitor Bank of Japan commentary. Views on inflation, the Japanese economy, the Yen, and interest rates could move the dial.

US Economic Calendar: Retail Sales and Fed Speakers

Later in the session, retail sales figures will likely influence buyer appetite for the USD/JPY.

Economists forecast retail sales to increase by 0.3% in May after stalling in April. Additionally, economists predict retail sales ex-autos to advance by 0.2% after an increase of 0.2% in April.

Higher-than-expected numbers could temper investor bets on a September Fed rate cut. Upward trends in consumer spending could fuel demand-driven inflationary pressures. A more hawkish Fed rate path may raise borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

Other stats include industrial production figures for May. However, the industrial production numbers will likely play second fiddle to the retail sales data.

Beyond the stats, investors should track FOMC Member speeches. Comments regarding inflation, the economic outlook, and the timing of a Fed rate cut could move the dial.

FOMC Members Thomas Barkin, Susan Collins, Adriana Kugler, Alberto Musalem, and Austan Goolsbee are on the calendar to deliver speeches.

Short-term Forecast

Near-term trends for the USD/JPY will depend on US retail sales figures, Bank of Japan chatter, and Fed speakers. An unexpected fall in US retail sales could shift monetary policy divergence toward the Japanese Yen before inflation and private sector PMI numbers on Friday.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 158 handle would support a move toward the 159 handle. Moreover, a USD/JPY breakout from 159 could give the bulls a run at the April 29 high of 160.209.

Investors should consider Bank of Japan commentary, US retail sales, and FOMC Member chatter.

Conversely, a USD/JPY fall below the 157 handle could signal a drop to the 50-day EMA. A break below the 50-day EMA could bring the 151.685 support level into view.

The 14-day RSI at 59.46 indicates a USD/JPY rise to the April 29 high of 160.209 before entering overbought territory.