USD/JPY Forecast: Yen Weakness in Focus as Investors Eye BoJ’s Next Moves

The Bank of Japan in the Spotlight

The Bank of Japan and the USD/JPY will remain in the spotlight on Thursday (May 30). Views on inflation, the impact of a weaker Yen, and the timing of a BoJ rate hike would garner investor attention.

On Wednesday (May 29), BoJ Board Member Seiji Adachi warned of a policy response if the weaker Yen affects inflation. A weaker Yen raises import costs and the prices consumers pay for goods. Consumers could curb spending, impacting price stability and the Japanese economy.

In May, consumer confidence waned, with the Consumer Confidence Index unexpectedly falling from 38.3 to 36.2. The pullback in consumer confidence followed the significant wage hikes in the spring, suggesting continued weakness in household spending.

The BoJ focuses on household spending and the services sector as potential drivers of demand-driven inflation. The weaker Yen could also affect the economy, with private consumption contributing over 50% to the Japanese economy.

There are no stats from Japan to consider before Tokyo inflation, retail sales, industrial production, and unemployment numbers on May 31. Nevertheless, the USD/JPY move toward 158 could trigger intervention threats from the Japanese government.

US Economic Calendar: Fed Speakers, GDP Numbers, and Jobless Claims

Later in the Thursday session, the second estimate of GDP and jobless claims figures warrant investor attention.

According to the first estimate of GDP, the US economy expanded by 1.3% in Q1 2024 after growing by 3.4% in Q4 2023. A more marked expansion could reduce investor bets on a September Fed rate cut. The Fed could leave interest rates higher for longer to cool the economy and dampen demand-driven inflation.

However, labor market conditions may also influence the Fed rate path. Economists forecast US initial jobless claims to increase from 215k to 218k in the week ending May 24. An unexpected fall in claims could also impact investor expectations of a September rate cut.

Tight labor market conditions could support wage growth and increase disposable income. Higher disposable income may fuel consumer spending and demand-driven inflation.

Other stats include housing sector data. However, these will likely play second fiddle to the GDP and labor market numbers.

Beyond the numbers, Fed commentary needs consideration. Reactions to recent US economic data, views on inflation, and the Fed rate path could move the dial. Fed Vice Chair John Williams and FOMC member Lorie Logan are on the calendar to speak.

Short-term Forecast

Near-term trends for the USD/JPY may depend on the Japanese and US inflation figures. However, BoJ and Fed chatter could also influence near-term price trends in the USD/JPY pairing. Moreover, investors should consider the implications of a weaker Yen on BoJ policy goals.

USD/JPY Price Action

Daily Chart

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

A USD/JPY breakout from the 157.5 handle could give the bulls a run at the 160 handle. Furthermore, a return to 160 could signal a move to the April 29 high of 160.209.

US GDP, initial jobless claims, and central bank comments need consideration before the Friday session.

Conversely, a USD/JPY fall through the 157 handle could signal a drop toward the 50-day EMA. A break below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 64.39 indicates a USD/JPY climb to the April 29 high of 160.209 before entering overbought territory.